Founded in the early 1980s, the Vermont Teddy Bear Co. designs and manufactures Americanmade teddy bears and markets them primarily as gifts called Bear-Grams or Teddy Bear-Grams. Bear-Grams are personalized teddy bears delivered directly to the recipient for special occasions such as birthdays and anniversaries. The Shelburne, Vermont, company's primary markets are New York, Boston, and Chicago. Sales have jumped dramatically in recent years. Such dramatic growth has significant implications for cash flows. Provided below are the cash flow statements for two recent years for the company.

Other information:

Instructions(a) Note that net income in the current year was only $17,523 compared to prior-year income of $838,955, but cash flow from operations was $236,480 in the current year and a negative $700,957 in the prior year. Explain the causes of this apparent paradox.(b) Evaluate Vermont Teddy Bear's liquidity, solvency, and profitability for the current year using cash flow-based ratios.

Transcribed Image Text:

Current Year Prior Year Cash flows from operating activities: Net income $ 838,955 17,523 Adjustments to reconcile net income to net cash provided by operating activities Deferred income taxes (69,524) 316,416 (146,590) 181,348 Depreciation and amortization Changes in assets and liabilities: Accounts receivable, trade Inventories Prepaid and other current assets Deposits and other assets Accounts payable Accrued expenses Accrued interest payable, debentures (38,267) (1,599,014) (444,794) (24,240) 2,017,059 (25,947) (1,289,293) (113,205) (83,044) (284,567) 170,755 (58,219) (8,960) 117,810 61,321 Other Income taxes payable Net cash provided by (used for) operating activities Net cash used for investing activities Net cash (used for) provided by financing 236,480 (2,102,892) (700,957) (4,422,953) activities (315,353) (2.181.765) 9,685,435 4.561.525 Net change in cash and cash equivalents