Wu Company's income statement for the year ended December 31, 2011, and its comparative balance sheets as of December 31, 2011 and 2010, are presented on the next page. During 2011, Wu Company engaged in these transactions:

a. Sold at a gain of $7,000 furniture and fixtures that cost $ 35,600, on which it had accumulated depreciation of $28,800.

b. Purchased furniture and fixtures in the amount of $39,600.

c. Paid a $20,000 note payable and borrowed $40,000 on a new note.

d. Converted bonds payable in the amount of $100,000 into 4,000 shares of common stock.

e. Declared and paid $6,000 in cash dividends.

Required
1. Using the indirect method, prepare a statements of cash flows for Wu Company. Include a supporting schedule of noncash investing transaction and financing transactions.
2. What are the primary reasons for Wu Company's large increase in cash from 2010 to 2011, despite its low net income?
3. Compute and assess cash flow yield and free cash flow for 2011. Compare and contrast what these two performance measures tell you about Wu Company's cash-generating ability.

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Wu Company Income Statement For the Year Ended December 31, 2011 Sales Cost of goods sold Gross margin Operating expenses (including depreciation $1,609,000 1,127,800 481,200 expense of $46,800) Income from operations Other income (expenses) 449 400 $31,800 Gain on sale of furniture and fixtures $ 7,000 (23.200) Interest expense Income before income taxes Income taxes expense Net income (16,200) 15,600 4,600 11,000 Wu Company Comparatlve Balance Sheets December 31, 2011 and 2010 2011 2010 Assets Cash Accounts receivable (net Merchandise inventory Prepaid rent Furniture and fixtures $164,800 50,000 165,200 200,000 350,000 450,000 3,000 148,000 44,000 2,000 Accumulated depreciation-furniture and fixtures 42000) 24,000) Total assets $788,000 $823,000 Llabllitles and Stockholders' Equity Accounts payable Income taxes payable Notes payable (long-term) Bonds payable Common stock, $20 par value Additional paid-in capital Retained eamings Total liabilities and stockholders equity $143,400 $200,400 4,400 20,000 100,000 200,000 240,000 200,000 181,440 121,440 81,760 76,760 $788,000 $823,000 1,400 40,000