Statement of Cash Flows: Indirect Method
p3.Chaplin Arts, Inc.’s comparative balance sheets for December 31, 2014 and 2013 follow.
Chaplin Arts, Inc.
Comparative Balance Sheets December 31, 2014 and 2013
2014 2013
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 depreciation—building |
(15,000) |
— |
|
|
Equipment |
33,000 |
34,000 |
|
|
Accumulated depreciation—equipment |
(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 |
The following additional information about Chaplin Arts’s operations during 2013 is avail- able: (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 depre- ciation of $12,500 sold at a gain of $5,300; (d) equipment purchases, $12,500; (e) patent amortization, $3,000; purchase of patent, $1,000; (f) funds borrowed by issuing notes pay- able, $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 Chaplin Arts.
2. aCCounting ConneCtion▶ Why did Chaplin Arts have an increase in cash of
$67,200 when it recorded net income of only $28,000? Discuss and interpret.
3. Business appliCation▶ Compute and assess cash flow yield and free cash flow for 2014. (Round to one decimal place.) What is your assessment of Chaplin Arts’ cash-generating ability?
