Problem 56 Lansbury Inc had the following balance sheet at D

Problem 5-6 Lansbury Inc. had the following balance sheet at December 31, 2016 LANSBURY INC. BALANCE SHEET DECEMBER 31, 2016 $20,000 Accounts payable Cash Accounts receivable Investments Plant assets (net) Land $30,000 41,000 100,000 23,200 $194,200 21,200 Notes payable (long-term) 32,000 Common stock 81,000 Retained earnings 40,000 $194,200 During 2017, the following occurred 1. Lansbury Inc. sold part of its investment portfolio for $15,000. This transaction resulted in a gain of $3,400 for the firm. The company classifies its investments as available-for-sale. 2. A tract of land was purchased for $13,000 cash. 3. Long-term notes payable in the amount of $16,000 were retired before maturity by paying $16,000 cash 4. An additional $20,000 in common stock was issued at par. 5. Dividends of $8,200 were declared and paid to stockholders. 6. Net income for 2017 was $32,000 after allowing for depreciation of $11,000 7. Land was purchased through the issuance of $35,000 in bonds. 8. At December 31, 2017, Cash was $37,000, Accounts Receivable was $41,600, and Accounts Payable remained at $30,000. Prepare a statement of cash flows for 2017. (Show amounts that decrease cash flow with either a -sign e.g. -15,000 or in parenthesis e.g. (15,000).) LANSBURY INC. Statement of Cash Flows Adjustments to reconcile net income to search

Solution

Cash flow indirect method Cash flow from operating activities Net income 32000 Adjustments to reconcile the net income Gain on sale of investment -3400 Depreciation expense 11000 Changes in current asset and liabilities Increase in accounts receivable -20400 Increase in accounts payable 0 -12800 Cash flow from operating activities 19200 Cash flow from Investing activities Land purchased -13000 Equipment sold Investment sold 15000 Cash flow from Investing activities 2000 Cash flow from Financing activities Notes payable retired -16000 Common stock 20000 Dividend paid -8200 Cash flow from Financing activities -4200 Net Cash and cash equivalent 17000 Add Beginning cash and cash equivalent 20000 Ending cash and cash equivalent 37000 Balance sheet Assets Cash 37000 Accounts receivable 41600 Investment 20400 Plant assets 70000 Land 88000 Total assets 257000 Liabilities and stockhodlers equity Accounts payable 30000 Notes payable long term 60000 Common stock 120000 Retained earnings 47000 Total liabilities and stockholders equity 257000 1 Current cash debt coverage ratio = net cash provided by operating activities /average current liabilities Net cash provided by operating activities 19200 Average current liabilities 30000 Current cash debt coverage ratio 0.64 2 Cash debt coverage ratio = net cash provided by operating activities /total liabilities Net cash provided by operating activities 19200 Total liabilities 80500 Cash debt coverage ratio 0.24