A) net income 28,000 b) building and equipment depreciation expense accounts, 15

Question

A) net income 28,000

b) building and equipment depreciation expense accounts, 15,000 and 3,000 respectively

c) equipment that cost 13,500 with accumlated 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

1. Using the indirect method, prepare a statement of cash flows for Chaplin Arts.

2. Why did Chaplin Arts have an increase in cash of when it recorded net income of only ? Discuss and interpret.

3. Compute and assess cash flow yield and free cash flow for 2014. (Round to one decimal place.) What is your assessment of Chaplin Arts’ cash-generating ability?

Chaplin Arts, Inc Comparative Balance Sheet:s December 31, 2014 and 2013 2014 2013 Assets $ 27,360 75,430 137,890 20,000 Cash Accounts receivable (net) Inventory Prepaid expenses Land Building Accumulated depreciation-building Equipment Accumulated depreciation-equipment Patents Total assets 94,560 102,430 112,890 25,000 137,000 (15,000) 33,000 (14,500) 4,000 $479,380 34,000 (24,000) 6,000 $276,680 Liabilities and Stockholders' Equity 10,750 10,000 Accounts payable Notes payable (current) Accrued liabilities Mortgage payable Common stock, $10 par value Additional paid-in capital Retained earnings Total liabiities and stockholders' equity $ 36,750 12,300 162,000 180,000 57,200 59,430 $479,380 150,000 37,200 40,430 $276,680

Explanation / Answer

There was increase in cash due to movements in current asset, issue of common stocks and movement in assets.

free cash flow is (94560+7200= 99,760). its has good pontential of generating cashflows.

Cash flows from operating activities Net income $28,000 Adjustments for: Depreciation and amortization 21,000 Profit on sale of Equipment -5,300 15,700 Increase in account receivable -27,000 Decrease in inventory 25,000 Decrease in prepaid expenses 20,000 decrease in account payable -26,000 increase in notes payable 10,000 decrease in accrued liabilites -12,300 -10,300 Cash generated from operations 33,400 Cash flows from investing activities Purchase of new Equipment -12,500 Proceeds from sale of Equipment    6,300 Purchase of patent -1,000 Net cash used in investing activities -7,200 Cash flows from financing activities Proceeds from issue of common stock 50,000 Dividends paid -9,000 Net cash used in financing activities 41,000 Net increase in cash and cash equivalents 67,200 Cash and cash equivalents at beginning of period 27,360 Cash and cash equivalents at end of period $94,560 Note: land and building purchased on mortgage hence not considered

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