Preparing the Statement of Cash Flows}

The comparative statements of financial position for Bihar Products Company are presented below.

\section*{Additional Information:}
1. Net income for 2018 was \(\$ 58,400\).
2. Cash dividends of \(\$ 25,000\) were declared and paid during 2018 .
3. During 2018 , Bihar issued \(\$ 50,000\) of notes payable and repaid \(\$ 35,000\) principal relating to notes payable.
4. Common shares were issued for \(\$ 50,000\) cash.
5. Depreciation expense was \(\$ 18,650\), and there were no disposals of equipment.

\section*{Required:}
1. Prepare a statement of cash flows (indirect method) for Bihar Products for 2018.
2. Compute the following cash-based performance measures:

(a) free cash flow,

(b) cash flow adequacy, and

(c) quality of earnings ratio. (Note: Assume that the average amount of debt maturing over the next five years is \(\$ 85,000\). Round ratio to two decimal places.)
3. What can you conclude by examining the patterns in Bihar's cash flows?
\section*{Exercise

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2018 2017 Assets: Cash $ 36.950 $ 25,000 Accounts receivable 75,100 78,000 Inventory 45,300 36,000 Property, plant, and equipment 256,400 153,000 Accumulated depreciation (38,650) (20,000) Total assets $375,100 $272,000 Liabilities and Equity: Accounts payable Interest payable Wages payable Notes payable Common shares Retained earnings Total liabilities and equity $ 13,100 $ 11,000 11,500 8,000 8,100 9.000 105,000 90,000 100,000 50,000 137,400 104,000 $375,100 $272,000