Question

Financial statements for Space Galaxy Ltd. are presented below:

Space Galaxy Ltd.

Statement of Financial Position

December 31, 2018

Assets		Liabilities & Shareholders’ Equity
Cash ................................................       $ 44,000		Accounts payable                      $ 28,000
Accounts receivable                                   39,000 Buildings and equipment                         154,000 Accumulated depreciation—		Bonds payable                           54,000
buildings and equipment                 (46,000)		Common shares                        69,000
Patents                                                        24,000		Retained earnings                    64,000
$215,000		$215,000

Space Galaxy Ltd.

Statement of Cash Flows

For the Year Ended December 31, 2018

Cash flows from operating activities

              Net income                                                                                                                        $ 60,000           Adjustments to reconcile net income to net cash        provided by operating activities:

                                                           Increase in accounts receivable                                                                                $(19,000)

                                                     Increase in accounts payable                                                          7,000

                                          Depreciation—buildings and equipment                                     12,000

                                                       Gain on sale of equipment                                                             (7,000)

Amortization of patents                                                                      3,000	(4,000)
Net cash provided by operating activities                                                               Cash flows from investing activities          Sale of equipment                                                                                     14,000          Purchase of land                                                                                       (27,000)          Purchase of buildings and equipment                                                  (52,000)	56,000
Net cash used by investing activities                                                                        Cash flows from financing activities          Payment of cash dividend                                                                       (25,000)          Sale of bonds                                                                                               45,000	(65,000)
Net cash provided by financing activities	20,000
Net increase in cash	11,000
Cash, January 1, 2018	33,000
Cash, December 31, 2018	$ 44,000

At the beginning of 2018, the accounts payable balance was $21,000, and the bonds payable balance was $9,000. All of Space Galaxy’s bonds have been issued at par.

Required

1. Calculate the current cash debt coverage ratio

2. Calculate the cash debt coverage rati

3. Calculate the free cash flow

Answer 1