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

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jun 28, 2024

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?