The comparative balance sheets for Arif Fabrics, Inc, for December 31, 2010 and 2009 appear below:
2010 2009
Assets
Cash $ 94,560 $ 27,360
Accounts receivable (net) 102,430 75,430
Inventory 112,890 137,890
Prepaid expenses 20,000
Land 25,000
Building 137,000
Accumulated depreciationbuilding (15,000)
Equipment 33,000 34,000
Accumulated depreciationequipment (14,500) (24,000)
Patents 4,000 6,000
Total assets $479,380 $276,680
Liabilities and Stockholders Equity
Accounts payable $ 10,750 $ 36,750
Notes payable (current) 10,000
Accrued liabilities 12,300
Mortgage payable 162,000
Common stock, $10 par value 180,000 150,000
Additional paid-in capital 57,200 37,200
Retained earnings 59,430 40,430
Total liabilities and stockholders equity $479,380 $276,680
Additional information about Arif Fabricss operations during 2010 is as fol-
lows: (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) equip-
ment purchases, $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 dividend, $9,000.
Required
1. Using the indirect method, prepare a statement of cash flows for Arif
Fabrics.
2. Why did Arif Fabrics have an increase in cash of $67,200 when it recorded
User insight 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
User insight assessment of Arifs cash-generating ability?
