Bronek Corporation’s income statement for the year ended June 30, 2011, and its comparative balance sheets as of June 30, 2011 and 2010 follow. During 2011, the corporation sold at a loss of $2,000 equipment that cost $12,000, on which it had accumulated depreciation of $8,500. It also purchased land and a building for $50,000 through an increase of $50,000 in mortgage payable, made a $10,000 payment on the mortgage, repaid notes ($40,000) but borrowed an additional $15,000 through the issuance of a new note payable of $40,000, and declared and paid a $30,000 cash dividend.

REQUIRED

1. Using the indirect method, prepare a statement of cash flows. Include a supporting schedule of noncash investing and financing transactions.

2. What are the primary reasons for Bronek Corporation’s large increase in cash from 2010 to 2011?

3. Compute and assess cash flow yield and free cash flow for 2011. (Round cash flow yield to one decimal place.) How would you assess the corporation’s ability to generate sufficient cash flow?

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Bronek Corporation Income Statement For the Year Ended June 30, 2011 Sales Cost of goods sold Gross margin Operating expenses (Including 2,020,450 1,828,150 192,300 depreciation expense of $30,000) Income from operations Other income (expenses) 94,600 $97,700 Loss on sale of equipment S (2,000) Interest expense Income before income taxes Income taxes expense Net income (20,800) $76,900 17,100 $59,800 Bronek Corporation Comparative Balance Sheets June 30, 2011 and 2010 2011 2010 Assets Cash Accounts receivable (net) Inventory Prepaid expenses Property, plant, and equipment Accumulated depreciation-property, $83,500 50,000 90,000 300 314,000 10,000 60,000 110,000 500 276,000 plant, and equipment Total assets (91.500 (70,000) $386,500 $446,300 Liabilities and Stockholders' Equity Accounts payable Notes payable (due in 90 days) Income taxes payable Mortgage payable Common stock, $5 par value Retained earnings Total liabilities and stockholders' equity 21,000 40,000 9,000 140,000 100,000 106300 76,500 32,000 15,000 13,000 180,000 100,000 $446,300