Shah Fabrics, Inc.’s comparative balance sheets for December 31, 2014 and 2013, follow.

Additional information about Shah Fabrics’ operations during 2014 is as follows: (a) net income, $112,000; (b) building and equipment depreciation expense amounts, $60,000 and $12,000, respectively; (c) equipment that cost $54,000 with accumulated depreciation of $50,000 sold at a gain of $21,200; (d) equipment purchases, $50,000; (e) patent amortization, $12,000; purchase of patent, $4,000; (f) funds borrowed by issuing notes payable, $100,000; notes payable repaid, $60,000; (g) land and building purchased for $648,000 by signing a mortgage for the total cost; (h) 6,000 shares of $40 par value common stock issued for a total of $200,000; and (i) paid cash dividend, $36,000.

1. Using the indirect method, prepare a statement of cash flows for Shah Fabrics.
2. Why did Shah Fabrics have an increase in cash of $268,800 when it recorded net income of only $112,000? 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 Shah Fabrics’ cash-generatingability?

  • CreatedMarch 26, 2014
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