The comparative balance sheets for Carmelita Vases, Inc., for December 31, 2011 and 2010 follow. During 2011, the company had net income of $24,000 and building and equipment depreciation expenses of $20,000 and $15,000, respectively. It amortized intangible assets in the amount of $5,000; purchased investments for $29,000; sold investments for $37,500, on which it recorded a gain of $8,500; issued $60,000 of long-term bonds at face value; purchased land and a warehouse through an $80,000 mortgage; paid $10,000 to reduce the mortgage; borrowed $15,000 by issuing notes payable; repaid notes payable in the amount of $45,000; declared and paid cash dividends in the amount of $9,000; and purchased treasury stock in the amount of $5,000.

REQUIRED

1. Using the indirect method, prepare a statement of cash flows for Carmelita Vases.

2. Why did Carmelita Vases experience a decrease in cash in a year in which it had a net income of $24,000? Discuss and interpret.

3. Compute and assess cash flow yield and free cash flow for 2011. (Round cash flow yield to one decimal place.) Why is each of these measures important in assessing a company’s ability to generate sufficient cash flow?

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Carmelita Vases, Inc. Comparative Balance Sheets December 31, 2011 and 2010 2011 2010 Assets 64,400 184,700 240,000 76,400 189,700 200,000 6,700 110,000 80,300 230,000 (40,000) 120,000 (14,000) Accounts receivable (net) Inventory Prepald expenses 3,700 110,000 Land Building Accumulated depreciation-building Equipment Accumulated depreciation-equipment Intangible assets Total assets (60,000) 120,000 (29,000) 5,000 $1,029,100 $969,100 Liabilities and Stockholders' Equity Accounts payable Notes payable (current) Accrued liabillties Mortgage payable Bonds payable Common stock Additional paid-In capltal Retained earnings Treasury stock Total liabillties and stockholders' equity $117,700 10,000 2,700 270,000 250,000 325,000 $165,200 40,000 200,000 190,000 325,000 20,000 48,700 (25,000) 969,100 63,700 $1,029,100