P5-7 Aero Inc had the following balance sheet at December 31, 2013.

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 ofthe financial statements.

 

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