The comparative balance sheets of Madrasah Corporation at the beginning and end of the year 2020 appear below. Madrasah CorporationBalance Sheets Assets Dec. 31, 2020 Jan. 1, 2020 Inc./Dec. Cash $ 20,000 $ 13,000 $ 7,000 Inc. Accounts receivable 106,000 88,000 18,000 Inc. Equipment 39,000 22,000 17,000 Inc. Less: Accumulated depreciation—equipment 17,000 11,000 6,000 Inc. Total $148,000 $112,000 Liabilities and Stockholders' Equity Accounts payable $ 20,000 $ 15,000 5,000 Inc. Common stock 100,000 80,000 20,000 Inc. Retained earnings 28,000 17,000 11,000 Inc. Total $148,000 $112,000 Net income of $44,000 was reported, and dividends of $33,000 were paid in 2020. New equipment was purchased and none was sold. Instructions a. Prepare a statement of cash flows for the year 2020. b. Compute the current ratio (current assets ÷ current liabilities) as of January 1, 2020, and December 31, 2020, and compute free cash flow for the year 2020. c. In light of the analysis in (b), comment on Madrasah’s liquidity and financial flexibility. Problems
The comparative balance sheets of Madrasah Corporation at the beginning and end of the year 2020 appear below. Madrasah CorporationBalance Sheets Assets Dec. 31, 2020 Jan. 1, 2020 Inc./Dec. Cash $ 20,000 $ 13,000 $ 7,000 Inc. Accounts receivable 106,000 88,000 18,000 Inc. Equipment 39,000 22,000 17,000 Inc. Less: Accumulated depreciation—equipment 17,000 11,000 6,000 Inc. Total $148,000 $112,000 Liabilities and Stockholders' Equity Accounts payable $ 20,000 $ 15,000 5,000 Inc. Common stock 100,000 80,000 20,000 Inc. Retained earnings 28,000 17,000 11,000 Inc. Total $148,000 $112,000 Net income of $44,000 was reported, and dividends of $33,000 were paid in 2020. New equipment was purchased and none was sold. Instructions a. Prepare a statement of cash flows for the year 2020. b. Compute the current ratio (current assets ÷ current liabilities) as of January 1, 2020, and December 31, 2020, and compute free cash flow for the year 2020. c. In light of the analysis in (b), comment on Madrasah’s liquidity and financial flexibility. Problems
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter11: The Statement Of Cash Flows
Section: Chapter Questions
Problem 55PSA
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The comparative balance sheets of Madrasah Corporation at the beginning and end of the year 2020 appear below.
| Madrasah Corporation Balance Sheets |
||||||
| Assets | Dec. 31, 2020 | Jan. 1, 2020 | Inc./Dec. | |||
| Cash | $ 20,000 | $ 13,000 | $ 7,000 Inc. | |||
| 106,000 | 88,000 | 18,000 Inc. | ||||
| Equipment | 39,000 | 22,000 | 17,000 Inc. | |||
| Less: |
17,000 | 11,000 | 6,000 Inc. | |||
| Total | $148,000 | $112,000 | ||||
| Liabilities and |
||||||
| Accounts payable | $ 20,000 | $ 15,000 | 5,000 Inc. | |||
| Common stock | 100,000 | 80,000 | 20,000 Inc. | |||
| 28,000 | 17,000 | 11,000 Inc. | ||||
| Total | $148,000 | $112,000 |
Net income of $44,000 was reported, and dividends of $33,000 were paid in 2020. New equipment was purchased and none was sold.
Instructions
a. Prepare a statement of cash flows for the year 2020.
b. Compute the
c. In light of the analysis in (b), comment on Madrasah’s liquidity and financial flexibility.
Problems
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