P6-5 (Preparation and Analysis of Statement of Cash Flows) Here are the financial statements of YoYo Company.

YoYo Company

Comparative Balance Sheets

December 31

Assets

2008

2007

Cash

$26,000

$33,000

Accounts receivable

28,000

14,000

Merchandise inventory

38,000

25,000

Property, plant, and equipment

$70,000

$78,000

Less: Accumulated depreciation

(27,000)

43,000

(24,000)

54,000

Total

$135,000

$126,000

Liabilities and Stockholders Equity

Accounts payable

$31,000

$43,000

Income taxes payable

26,000

20,000

Bonds payable

20,000

10,000

Common stock

25,000

25,000

Retained earnings

33,000

28,000

Total

$135,000

	YoYo Company
	Income Statement
	For the Year Ended December 31, 2008
	Sales				$286,000
	Cost of goods sold				194,000
	Gross profit				92,000
	Selling expenses			$28,000
	Administrative expenses			9,000	37,000
	Income from operations				55,000
	Interest expense				7,000
	Income before income taxes				48,000
	Income tax expense				7,000
	Net income				$41,000

$126,000

Additional data:

1. Dividends of

$36,000

were declared and paid.

2. During the year equipment was sold for

$10,000

cash. This equipment cost

$15,000

originally and had a book value of

$10,000

at the time of sale.

3. All depreciation expense,

$8,000

, is in the selling expense category.

4. All sales and purchases are on account.

5. Additional equipment was purchased for

$7,000

cash.

(a) Prepare a statement of cash flows using the indirect method.

(b)(1) Compute the current cash debt coverage ratio.

(b)(2) Compute the cash debt coverage ratio.

(b)(3) Compute the free cash flow.