Question
The balance sheet for Sherban Company at year-end is below: Sherban Company Balance Sheet December 31, 2019 Assets Cash. $ 44,000 Accounts receivable. 39,000 Buildings
The balance sheet for Sherban Company at year-end is below:
Sherban Company
Balance Sheet
December 31, 2019
Assets
Cash. $ 44,000
Accounts receivable. 39,000
Buildings and equipment 178,000
Accumulated depreciation
buildings and equipment. (46,000)
Total Assets. $215,000
Liabilities & Shareholders' Equity
Accounts payable. $ 28,000
Bonds payable. 54,000
Common shares. 69,000
Retained earnings. 64,000
Total Liabilities and Equity $215,000
Additional information:
- The December 31, 2019 balance in accounts receivable represents an increase of $19,000 over last year's balance.
- Net income for 2019 is $60,000.
- Depreciation expense for 2019 is $15,000.
- In 2019, the company made cash purchases for land, $27,000 and equipment, $52,000. The opening balances of selected accounts at January 1, 2019 were as follows:
Retained Earnings, Jan 1, 2019. $29,000.
Accounts Payable, Jan 1, 2019. $21,000
Bonds Payable, Jan 1, 2019. $15,000
Assume bonds are non-current liabilities and cash dividends were paid.
Required: Assuming Sherban reports dividends paid as a financing activity:
a) Calculate net cash flow from operating activities. Use a proper three-line title. Show all calculations.
b) Calculate Sherban's current cash debt coverage ratio, cash debt coverage ratio and free cash flow.
c) Using your answers in part (b) and comment on Sherban's liquidity and financial flexibility.
d) Under IFRS, how else might Sherban account for cash dividends paid in the cash flow statement?
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