P5-7 Aero Inc. had the following balance sheet at December 31, 2011.

AERO INC.

Balance Sheet

December 31, 2011

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 2012, 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 totaling $10,000 were declared and paid to stockholders.

5.       Net income for 2012 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, 2012, Cash was $70,200, Accounts Receivable was $42,000, and Accounts Payable was $40,000.

Instructions

(a)     Prepare a statement of cash flows for the year 2012 for Aero.

(b)     Prepare the balance sheet as it would appear at December 31, 2012.

(c)      Compute Aero’s free cash flow and the current cash debt coverage ratio for 2012.

(d)     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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