The comparative balance sheets for Zagloba Materials, Inc., for December 31, 2011 and 2010 follow. Additional information
Question:
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.
REQUIRED
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 cash flow?
Free Cash FlowFree 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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