E5-11 (Statement of Financial Position Preparation) Presented below is the

adjusted trial balance of Abbey Corporation at December 31, 2015.

23
3
Debit Credit
Cash $ ?
Supplies 1,200
Prepaid Insurance 1,000
Equipment 48,000
Accumulated Depreciation—Equipment $9,000
Trademarks 950
Accounts Payable 10,000
Salaries and Wages Payable 500
Unearned Service Revenue 2,000
Bonds Payable (due 2022) 9,000
Share capital- ordinary 10,000
Retained Earnings 20,000
Service Revenue 10,000
Salaries and Wages Expense 9,000
Insurance Expense 1,400
Rent Expense 1,200
Interest Expense 900

Total $ ? $ ?

Additional information:
1. Net loss for the year was $2,500.
2. No dividends were declared during 2015.
Instructions
Prepare a classified balance sheet as of December 31, 2015.

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EXERCISE 5-11 (25–30 minutes)

ABBEY CORPORATION
Statement of Financial Position
December 31, 2015
Assets
Property, plant, and equipment
Equipment............................................................... £48,000
Less: Accumulated depreciation—equipment... 9,000
Total property, plant, and equipment............ £39,000

Intangible assets
Trademark.............................................................. 950

Current assets
Supplies.................................................................. 1,200
Prepaid insurance.................................................. 1,000
Cash........................................................................  6,850*
Total current assets........................................     9,050
Total assets.................................................................. £49,000
Equity and Liabilities
Equity
Share capital—ordinary......................................... £10,000
Retained earnings (£20,000 – £2,500**).................   17,500
Total equity....................................................... £27,500

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Non-current liabilities
Bonds payable........................................................ £ 9,000

Current liabilities
Accounts payable..................................................
£10,000
Salary and Wages payable....................................
500
Unearned service revenue.....................................
2,000
Total current liabilities...................................   12,500
Total liabilities................................................ 21,500
Total equity and liabilities........................................... £49,000

*[£49,000 – £39,000 – £950 – £1,200 – £1,000]

**[£10,000 – (£9,000 + £1,400 + £1,200 + £900)]

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E5-16 (Preparation of a Statement of Cash Flows) A comparative statement of
financial position for Orozce Corporation is presented below.
December 31
Assets 2015 2014
Cash $ 63,000 $ 22,000
Accounts receivable 82,000 66,000
Inventory 180,000 189,000
Land 71,000 110,000
Equipment 270,000 200,000
Accumulated depreciation—equipment (69,000) (42,000)
Total $597,000 $545,000

Liabilities and Stockholders’ Equity

Accounts payable $ 34,000 $ 47,000
Bonds payable 150,000 200,000
Share capital- ordinary ($1 par) 214,000 164,000
Retained earnings 199,000 134,000
Total $597,000 $545,000
67
Additional information:
1. Net income for 2015 was $105,000. No gains or losses were recorded in 2015.
2. Cash dividends of $40,000 were declared and paid.
3. Bonds payable amounting to $50,000 were retired through issuance of ordinary
shares.
Instructions
(a) Prepare a statement of cash flows for 2015 for Orozce Corporation.
(b) Determine Orozce Corporation’s current cash debt coverage, cash debt
coverage, and free cashflow. Comment on its liquidity and financial flexibility.

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EXERCISE 5-16 (25–35 minutes)

(a) OROZCO CORPORATION

Statement of Cash Flows

For the Year Ended December 31, 2015

Cash flows from operating activities

Net income............................................................... €105,000

Adjustments to reconcile net income to net

cash provided by operating activities:

Depreciation expense....................................... €27,000

Decrease in inventory....................................... 9,000

Increase in accounts receivable...................... (16,000)

Decrease in accounts payable......................... (13,000) 7,000

Net cash provided by operating activities............ €112,000

Cash flows from investing activities

Sale of land.............................................................. 39,000

Purchase of equipment........................................... (70,000)

Net cash used by investing activities.................... (31,000)

Cash flows from financing activities

Payment of cash dividends.................................... (40,000)

Net increase in cash...................................................... 41,000

Cash at beginning of year............................................ 22,000

Cash at end of year....................................................... € 63,000

Noncash investing and financing activities were issue of ordinary shares to
retire €50,000 of bonds outstanding.

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EXERCISE 5-16 (Continued)

(b) Current cash debt coverage =

Net cash provided by operating activities

=
Average current liabilities

€112,000
=
(€34,000 + €47,000)/2

= 2.77 to 1

Cash debt coverage =

Net cash provided by operating activities

=
Average total liabilities

= €184,000 + €247,000
€112,000 ÷
2

= 0.52 to 1

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 Free Cash Flow Analysis

Net cash provided by operating activities.......................... €112,000

Less: Purchase of equipment............................................. (70,000)

Dividends.................................................................... (40,000)

Free cash flow....................................................................... € 2,000

Orozco has acceptable liquidity. Its financial flexibility is good. It might be

noted that it substantially reduced its long-term debt in 2015 which will help its
financial flexibility.

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