The comparative statements of cash flows for Wung Corporation, a manufacturer of high-quality suits for men, follow. To expand its markets and familiarity with its brand, the company attempted a new strategic diversification in 2013 by acquiring a chain of retail men€™s stores in outlet malls. Its plan was to expand in malls around the country, but department stores viewed the action as infringing on their territory.

Schedule of Noncash Investing and Financing Transactions
Issue of bonds payable for retail acquisition $ 100,000

Required
Evaluate the success of the company€™s strategy by answering the questions that follow.
1. What are the primary reasons cash flows from operating activities differ from net income in 2013 and in 2014? What is the effect of the acquisition in 2013? What conclusions can you draw from the changes in 2014?
2. Compute free cash flow for both years. What was the total cost of the acquisition? Was the company able to finance expansion in 2013 by generating internal cash flow? What was the situation in 2013?
3. What are the most significant financing activities in 2013? How did the company finance the acquisition? Do you think this is a good strategy? What other issues might you question in financing activities?
4. Based on results in 2014, what actions was the company forced to take and what is your overall assessment of the company€™s diversificationstrategy?

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Wung Corporation Statement of Cash Flows For the Years Ended December 31,2014 and 2013 (In thousands) Cash flows from operating activities: 2014 2013 Net income (loss) Adjustments to reconcile net income to net cash flows $ (43,090) $ 76,030 from operating activities: $ 70,438 70,000 S 50,036 Depreciation Loss on closure of retail outlets Changes in current assets and current liabilities: Decrease (increase) in accounts receivable Decrease (increase) in inventory Decrease (increase) in prepaid expenses Increase (decrease) in accounts payable Increase (decrease) in accrued liabilities Increase (decrease) in income taxes payable 100,000 120,814 2,734 61,158 3,000 (16600) 411,544 (89,606) (102,290) 4,492 2,532 (5,576) 12,562) $(152,974) Net cash flows from operating activities Cash flows from investing activities: S 368454 S (32,290) S (32,290) s (76,944) (66,224) (402,000) $(468,224) Capital expenditures, net Purchase of Retail Division, cash portion Net cash flows from investing activities Cash flows from financing activities: Increase (decrease) in notes payable to banks Reduction in long-term debt Payment of dividends Purchase of treasury stock (247,000) (18,476) (45,848) $ 456,800 (21,622) (39,946) (25,000) 370,232 $(174,936) 207,000 32,064 Net cash flows from financing activities Net increase (decrease) in cash Cash at beginning of year Cash at end of year (311,324) S 24,840 32,064 56,904