The comparative balance sheets for Sharma Fabrics, Inc., for December 31, 20x8 and 20x7 appear on the

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The comparative balance sheets for Sharma Fabrics, Inc., for December 31, 20x8 and 20x7 appear on the opposite page.

Additional information about Sharma Fabric's operations during 20x8 is as follows:

(a) Net income, $56,000;

(b) Building and equipment depreciation expense amounts, $ 30,000 and $ 6,000, respectively;

(c) Equipment that cost $27,000 with accumulated depreciation of $25,000 sold at a gain of $10,600;

(d) Equipment purchases, $25,000;

(e) Patent amortization, $6,000; purchase of patent, $2,000;

(f) Funds borrowed by issuing notes payable, $50,000; notes payable repaid, $30,000;

(g) Land and building purchased for $324,000 by signing a mortgage for the total cost;

(h) 3,000 shares of $20 par value common stock issued for a total of $100,000; and

(i) Paid cash dividend, $18,000.

Required

1. Using the indirect method, prepare a statement of cash flows for Sharma Fabrics, Inc.

2. Why did Sharma Fabrics have an increase in cash of $134,400 when it recorded net income of only $56,000? Discuss and interpret.

3. Compute and assess cash flow yield and free cash flow for 20x8. What is your assessment of Sharma's cash-generating ability?

Sharma Fabrics, Inc.

Comparative Balance Sheets

December 31, 20x8 and 20x7

The comparative balance sheets for Sharma Fabrics, Inc., for December

Liabilities and Stockholders' Equity

The comparative balance sheets for Sharma Fabrics, Inc., for December
Free Cash Flow
Free cash flow (FCF) represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. Unlike earnings or net income, free cash flow is a measure of profitability that excludes the...
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Related Book For  book-img-for-question

Principles of Accounting

ISBN: 978-0618736614

10th edition

Authors: Belverd Needles, Marian Powers, Susan Crosson

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