Question: Shah Fabrics Inc s comparative balance sheets for December 31 2014

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?

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  • CreatedMarch 26, 2014
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