The comparative balances sheets for Lopez Tools, Inc., for December 31, 2010 and 2009, are at the top of the next page. During 2010, the company had net income of $48,000 and building and equipment depreciation expenses of $40,000 and $30,000, respectively. It amortized intangible assets in the amount of $ 10,000; purchased investments for $58,000; sold investments for $75,000, on which it recorded a gain of $17,000; issued at $120,000 of long term bonds at face value; purchased land and a warehouse through a $160,000 mortgage; paid $20,000 to reduce the mortgage; borrowed $30,000 by issuing notes payables; repaid notes payable in the amount of $90,000; declared and paid cash dividend is the amount of $18,000; and purchased treasury stock in the amount of $10,000.

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Required

1. Using the indirect method, prepare a statement of cash flows for Lopez Tools, Inc.

2. Why did Lopez tools Experience a decrease in cash in a year in which it has a net income of $ 48,000? Discuss and interpret.

3. Compute and assess cash flow yield and free cash flow for 2010. Why is each of these measures important in assessing cash-generating ability?