Here are the financial statements of XYZ Children’s Centre Ltd.

The following additional data were provided:

1. Dividends of $28 800 were declared and paid.

2. During the year furniture was sold for $24 000 cash. This furniture originally cost $36 000 and had an accumulated depreciation of $12 000 at the time of sale.

3. All the depreciation expense, $26 400, is in the selling expense category.

4. All sales and purchases are on account.

5. Additional equipment was purchased for $16 800 cash.

6. Accounts payable pertains to inventory creditors. Inventory comprises food and drinks for staff and children.

7. All operating expenses except depreciation are paid in cash.

Required

(a) Prepare a statement of cash flows using the direct method for operating cash flows.

(b) Prepare a reconciliation of profit and cash provided by operations.

(c) Calculate these cash-based measures:

1. Current cash debt coverage.

2. Cash return on sales ratio.

3. Cash debt coverage.

4. Free cash flow.

(d) Discuss the cash adequacy of XYZ Children’s Centre Ltd, as revealed by the ratios calculated in part (c).  

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Assets Cash Accounts receivable Inventory XYZ CHILDREN'S CENTRE LTD Statement of financial position as at 31 December 2016 2016 Plant Less: Accumulated depreciation Total assets Liabilities and equity Accounts payable Income tax payable Debentures payable Share capital Retained earnings Total liabilities and equity $168 000 (72 000) $ 72 000 43 200 81 600 96 000 $292 800 $ 69600 36 000 36 000 72 000 79 200 $292 800 $187 200 (57 600) 2015 $ 31 200 33 600 84 000 129 600 $278 400 $ 79 200 48 000 24 000 60 000 67 200 $278 400