P5-7 Aero Inc had the following balance sheet at December 31, 2013.
AERO INC.
BALANCE SHEET
DECEMBER 31, 2013
Cash $20,000 Accounts payable $30,000
Accounts receivable 21,200 Bonds payable 41,000
Investments 32,000 Common stock 100,000
Plant assets(net) 81,000 Retained earnings 23,200
Land 40,000 $194,200
$194,200
During 2014, the following occurred.
1. Aero liquidated its available-for-sale investment portfolio at a loss of $5,000.
2. A tract of land was purchased for $38,000.
3. An additional $30,000 in common stock was issued at par.
4. Dividends totalling $10,000 were declared and paid to stockholders.
5. Net income for 2014 was $35,000, including $12,000 in depreciation expense.
6. land was purchased through the issuance of $30,000 in additional bonds.
7. At December 31, 2014, cash was $70,200, Accounts receivable was $42,000, and Accounts Payable was $40,000.
Instructions
1. Prepare a statement of cash flows for the year 2014 for Aero.
2. Prepare the unclassified balance sheet as it would appear at December 31, 2014.
3. Compute Aero’s free cash flow and current cash debt coverage for 2014.
4. Use the analysis of Aero to illustrate how information in the balance sheet and statement of cash flows helps the user of the financial statements.
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