Preparing direct method of deriving cash flow from operations from data in published annual report GTI Inc. manufactures parts, components, and processing equipment for electronics and semiconductor applications in the communication, computer, automotive, and appliance industries. Its sales tend to vary with changes in the business cycle since the sales of most of its customers are cyclical. Exhibit 5.30 presents balance sheets for GTI as of December 31, 2006, 2007, and 2008, and Exhibit 5.31 presents income statements for 2007 and 2008. Notes to the firm's financial statements reveal the following amounts in thousands):

(1) Depreciation expense, included in Administration Expenses, was $641 in 2007 and $625 in 2008.

(2) Other Noncurrent Assets represent patents Patent amortization, included in Administrative Expenses, was $25 in 2007 and $40 in 2008.

(3) Changes in Other Current Liabilities and Other Noncurrent Liabilities are both operating transactions relating to Administrative Expenses.

a. Prepare a T-account work sheet for the preparation of a statement of cash flows for GTI Inc. for 2007 and 2008.

b. Prepare a statement of cash flows for GTI inc. for 2007 and 2008. Present cash flows 1mm operations using the indirect method
c. Present a derivation of cash flows from operations for 2007 using the direct method.
d. Discuss the relation between net income and cash flow from operations and the pattern of cash flows from operating, investing, and financingactivities.

Transcribed Image Text:

GTI, Inc. Balance Sheets EXHIBIT 5.30 (all dollar amounts in thousands) (Problem 36) December 31 2008 2007 2006 ASSETS Cash. 430 367 475 Accounts Receivable 3,936 2,545 3,768 Inventories 2,334 2,094 2,966 Prepayments Total Current Assets.. 122 270 116 $ 5,128 $ 7,647 $ 6,648 Property, Plant, and Equipment (net) 4,027 4,598 3,806 Other Noncurrent Assets 559 456 193 Total Assets $ 9,611 $10,647 $12,804 LIABILITIES AND SHAREHOLDERS EQUITY S 809 S 1,578 Accounts Payable (to suppliers of inventery). $ 796 Notes Payable to Banks.. 2,413 231 11 Other Current Liabilities. 1,076 695 777 $ 1,817 $ 3,904 $ 2,665 Total Current Liabilities Long-Term Debt 2,084 4,692 2,353 Other Noncurrent Liabilities 89 126 113 $ 6,598 5 5,144 Total Liabilities. $ 6,101 Preferred Stock.. %24 %24 289 289 Common Stock Additional Paid-in Capital Retained Earnings Total Shareholders Equity 86 83 a5 4,385 4,394 4,392 (1,259) $ 3,510 1,440 $ 6,206 1,035 $ 5,503 Total Liabilities and Shareholders Equity $ 9,611 $12,804 S10,647