Question 2: Statement of Cash Flows (21 marks): The comparative statements of financial position for YUL Inc. as at December 31, 2015 and 2016, and its statement of earnings for the year ended December 31, 2016, are presented below. 2015 YUL INC. Statement of Financial Position As at December 31, Assets 2016 Current Assets Cash $ 168,608 Trades receivable (net) 51,520 Rent receivable 4.000 Prepaid insurance 6,700 Inventory 111,250 Total Current Assets 342,078 $ 74,000 46,000 12.000 100,000 232,000 Non-Current Assets Buildings and equipment (net) Land Total Non-Current Assets Total Assets 646,000 695,000 1,341,000 $1,683,078 334,000 150,000 484,000 $716,000 $ Liabilities and Shareholders' Equity Liabilities Current Liabilities Salaries payable Deferred revenue Income tax payable Dividends payable Total Current Liabilities 9,600 9,900 50,000 25,000 94,500 Non-Current Liabilities Bonds payable Total liabilities 500,000 594,500 Shareholders' Equity Common shares Retained earnings Total Shareholders' Equity Total Liabilities and Shareholders' Equity 730,000 358,578 1,088,578 $1,683,078 $ 564,000 152,000 716,000 $716,000 $805,400 201,750 603,650 YUL INC. Statement of Earnings For the year ended December 31, 2016 Revenues Sales (net) Cost of sales Gross Profit Operating Expenses Utilities expense Salaries expense Depreciation expense Insurance expense Shipping expense Bad debt expense Total Operating Expenses Earnings From operations Non-Operating Activities and Gains Rent revenue Interest expense Gain on sale of equipment Total Non-Operating Activities and Gains Earnings Before Income Tax Expense Income tax expense (25%) Net Earnings 56,000 99,600 38,000 5,300 1,500 6,480 206,880 396,770 48,000 (36,000) 10,000 22,000 418,770 104,692 $314,078 Earnings Per Share $15.70 Additional Information: 1) Equipment with a carrying value of $30,000 was sold for cash. 2) Every fixed asset (or capital asset) transaction was on cash basis. Required (Show your work and calculations): a) Using the indirect method, prepare the operating section of statement of cash flows for YUL Inc. for the year ended December 31, 2016. (6.5 marks) b) How much cash did the company pay for the buildings and equipment it acquired in 2016? How much did it pay for the land it acquired in 2016? (3 marks) c) How much cash did the company receive for selling equipment during 2016? (1 mark) d) How much cash did the company pay for dividends in 2016? (2 marks) e) How much cash did the company pay for income taxes during 2016? (1 mark) f) How much did the company receive from its customers during 2016? (1.5 marks) g) Compute and interpret the cash coverage ratio and the times interest earned ratio. Limit your interpretation to one statement per ratio. (5 marks) h) In one statement and based on your computations for both ratios in (g) above, what can you say about YUL's capabilities regarding interest expense obligations? (1 mark)
