Problem # 2

Brecker Inc., a greeting card company, had the following statements prepared as of December 31, 2017.

BRECkER INC.

Comparative Balance Sheet

As of December 31, 2017 and 2016

12/31/17 12/31/16

Cash $6,000	$7000
Accounts Receivable 62,000	51,000
Short-term investments 35,000	18,000
Inventory 40,000	60,000
Prepaid rent 5,000	4,000
Equipment 154,000	130,000
Accumulated Depreciation-Equipment (35,000)	(25,000)
Copyrights 46,000 Total Assets $313,000 Accounts Payable $46,000 Income Taxes payable 4,000 Salaries and Wages Payable 8,000 Short-term loan payable 8,000 Long-term loan payable 60,000 Common stock, $10 par value 100,000 Contributed capital, common stock 30,000 Retained earnings 57,000 Total liabilities & stockholders equity $313,000	50,000 $295,000 $40,000 6,000 4000 10,000 69,000 100,000 30,000 36,000 $295,000

BRECKER, INC.

Income Statement

For the year ended December 31, 2017

Sales	$338,150
Cost of goods sold	175,000
Gross profit	163,150
Operating expenses	120,000
Operating income	43,150
Interest expens $11,400
Gain on sale of equipment 2,000	9,400
Income before tax Income tax expense Net Income	33,750 6,750 $27,000

Additional information:

1. Dividends in the amount of $6,000 were declared and paid during 2017.

2. Depreciation expense and amortization expense are included in operating expenses.

3. No unrealized gains or losses have occurred on the investments during the year.

4. Equipment that had a cost of $20,000 and was 70% depreciated was sold during 2017.

Required:

1. Prepare a statement of cash flows using the direct method

2. Prepare a statement of cash flows operating section ONLY using the direct method.

3. Compute return on total assets

4. Compute return on common shareholders equity

5. Compute payout ratio

6. Compute current cash debt coverage

7. Compute cash debt coverage ratio

8. Compute free cash flow