The comparative balance sheets for Alvin Arts, Inc., for December 31, 2011 and 2009 appear on the
Question:
The comparative balance sheets for Alvin Arts, Inc., for December 31, 2011 and 2009 appear on the opposite page. Additional information about Alvin Art's operations during 2010 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 purchase, $ 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 dividends, $ 9,000.
Required
1. Using the indirect method, prepare a statement of cash flows for Alvin Arts, Inc,.
2. Why did Alvin Arts 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 2010. What is your assessment of Alvin's cash-generatingability?
Free 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...
Step by Step Answer: