Kohl Ceramics, Inc.€™s comparative balance sheets, for December 31, 2014 and 2013, follow.

During 2014, the company had net income of $192,000 and building and equipment depreciation expenses of $160,000 and $120,000, respectively. It amortized intangible assets in the amount of $40,000; purchased investments for $232,000; sold investments for $300,000, on which it recorded a gain of $68,000; issued $480,000 of long-term bonds at face value; purchased land and a warehouse through a $640,000 mortgage; paid $80,000 to reduce the mortgage; borrowed $120,000 by issuing notes payable; repaid notes payable in the amount of $360,000; declared and paid cash dividends in the amount of $72,000; and purchased treasury stock in the amount of $40,000.

Required
1. Using the indirect method, prepare a statement of cash flows for Kohl Ceramics.
2. Why did Kohl Ceramics experience a decrease in cash in a year in which it had a net income of $192,000? Discuss and interpret.
3. Compute and assess cash flow yield and free cash flow for 2014. Why is each of these measures important in assessing cash-generatingability?

Transcribed Image Text:

Kohl Ceramics, Inc. Comparative Balance Sheets December 31, 2014 and 2013 2014 2013 Assets Accounts receivable (net) Inventory Prepaid expenses Long-term investments Land Building Accumulated depreciation- building Equipment Accumulated depreciation -equipment Intangible assets Total assets 515,200 1477,600 1,920,000 29,600 880,000 722400 2,400,000 (480,000) 960,000 611,200 1,517600 1,600,000 53,600 880,000 642,400 1,840,000 (320,000) 960,000 (112,000) 80,000 7,752,800 40,000 Liabilities and Stockholders' Equity Notes payable (current) Accrued liabilities Mortgage payable Bonds payable Common stock Additional paid-in capital Retained earnings Treasury stock Total liabilities and stockholders equity 941,600 80,000 21,600 2,160,000 2,000,000 2,600,000 160,000 509,600 (240,000) $8,232,800 1,321,600 320,000 41,600 1,600,000 1,520,000 2,600,000 160,000 389,600 (200,000) 7,752,800