The comparative balance sheets for Sharma Fabrics, Inc., for December 31, 2011 and 2010, appear on the

Question:

The comparative balance sheets for Sharma Fabrics, Inc., for December 31, 2011 and 2010, appear on the new page. Additional information about Sharma Fabrics' operation during 2011 is as follows:

(a) Net income, $56,000;

(b) Building and equipment depreciation expense amounts, $ 30,000 and $60,000, respectively;

(c) Equipment that cost $ 27,000 with accumulate depreciation of $25,000 sold at a gain of $10,600;

(d) Equipment purchase $25,000;

(e) Patent amortization, $6,000; purchase of patent, $2,000;

(f) Funds borrowed by issuing notes payable, $50,000; note payable repaid, $30,000;

(g) Land and building purchased for $324,000 by signing a mortgage for the total cost;

(h) 3,000 shares of $20 par value common stock issued for a total of $100,000 and

(i) Paid cash dividend, $18,000.


The comparative balance sheets for Sharma Fabrics, Inc., for Dec



Required
1. Using the indirect method, prepare a statement of cash flows for Sharma Fabrics, Inc.
2. Why did Sharma Fabrics have an increase in cash of $134,400 when it recorded net income of only $56,000? Discuss and interpret.
3. Compute and assess cash flow yield and free cash flow for 2011. What is your assessment of Sharma's cash-generatingability?

Free Cash Flow
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...
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Related Book For  book-img-for-question

Principles Of Financial Accounting

ISBN: 9780538755160

11th Edition

Authors: Belverd E Needles, Marian Powers

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