Question: The comparative balance sheets for Zagloba Materials Inc for December

The comparative balance sheets for Zagloba Materials, Inc., for December 31, 2011 and 2010 follow. Additional information about Zagloba Materials’ operations during 2011 is as follows: (a) net income, $28,000; (b) building and equipment depreciation expense amounts, $15,000 and $3,000, respectively; (c) equipment that cost $13,500 with accumulated depreciation of $12,500 sold at a gain of $5,300; (d) equipment purchases, $12,500; (e) patent amortization, $3,000; purchase of patent, $1,000; (f) funds borrowed by issuing notes payable, $25,000; notes payable repaid, $15,000; (g) land and building purchased for $162,000 by signing a mortgage for the total cost; (h) 1,500 shares of $20 par value common stock issued for a total of $50,000; and (i) paid cash dividend, $9,000.

1. Using the indirect method, prepare a statement of cash flows for Zagloba Materials.
2. Why did Zagloba Materials have an increase in cash of $67,200 when it recorded net income of only $28,000? Discuss and interpret.
3. Compute and assess cash flow yield and free cash flow for 2011. (Note: Round cash flow yield to one decimal place.) What is your assessment of Zagloba’s ability to generate sufficient cashflow?

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  • CreatedSeptember 10, 2014
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