Required:
1. Using the indirect method, prepare a statement of cash flows for Alvin Arts, Inc.
2. Why did Alvin Arts have an increase in cash of $67,200 when it recorded net income of only $28,000? Discuss and interpret.
3. Compute and assess cash flow yield and free cash flow yield and free cash flow for 2010. What is your assessment of Alvin's cash-generating ability?
Statement of Cash Flows: Indirect Method
The comparative balance sheets for Alvin Arts, Inc. for December 31, 2011 and 2009 appear on the opposite page. Additional information about Alvin Art's operations during 2010 is as follows:
a. Net income - $28,000
b. Building and equipment depreciation expense amounts - $15,000 and $3,000 respectively
c. Equipment that cost- $13,500 with accumulated depreciation of- $12,500 sold at a gain of -$5,300
d. Equipment purchases $12,500
e. Patent amortization - $3,000; purchase of patent - $1,000
f. Funds borrowed by issuing notes payable - $25,000; notes payable repaid - $15,000
g. Land and building purchased for - $162,000 by signing a mortgage for the total cost
h. 1,500 shares of $20 par value common stock issued for a total of $50,000
i. Paid cash dividends - $9,000.