Question

Chaplin Arts, Inc.’s comparative balance sheets for December 31, 2014 and 2013 follow.


The following additional information about Chaplin Arts’s operations during 2013 is available:
(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.

Required
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 $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 for 2014. (Round to one decimal place.) What is your assessment of Chaplin Arts’ cash-generatingability?


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  • CreatedMarch 26, 2014
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