Shown on the next page are the financial statements of Klemmer Company.
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KLEMMER COMPANY
Comparative Balance Sheets
December 31
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Assets
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2012
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2011
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Cash
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$ 25,000
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$ 33,000
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Accounts receivable
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23,000
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14,000
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Inventory
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41,000
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25,000
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Property, plant, and equipment
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$ 73,000
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$ 78,000
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Less: Accumulated depreciation
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(27,000)
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46,000
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(24,000)
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54,000
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Total
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$135,000
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$126,000
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Liabilities and Stockholders" Equity
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Accounts payable
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$ 23,000
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$ 46,000
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Income taxes payable
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26,000
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23,000
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Bonds payable
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20,000
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10,000
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Common stock
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25,000
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25,000
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Retained earnings
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41,000
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22,000
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Total
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$135,000
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$126,000
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KLEMMER COMPANY
Income Statement
For the Year Ended December 31, 2012
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Sales
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$295,000
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Cost of goods sold
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194,000
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Gross profit
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101,000
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Selling expenses
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$28,000
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Administrative expenses
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9,000
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37,000
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Income from operations
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64,000
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Interest expense
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7,000
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Income before income taxes
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57,000
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Income tax expense
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13,000
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Net income
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$ 44,000
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Additional data:
1. Depreciation expense was $6,000.
2. Dividends of $25,000 were declared and paid.
3. During the year, equipment was sold for $10,000 cash. This equipment cost $13,000 originally and had accumulated depreciation of $3,000 at the time of sale.
4. Additional equipment was purchased for $8,000 cash.
Instructions
(a) Prepare a statement of cash flows using the indirect method.
(b) Compute these cash-based measures:
(1) Current cash debt coverage ratio.
(2) Cash debt coverage ratio.
(3) Free cash flow.