PREPARING THE STATEMENT OF CASH FLOWS The comparative balance sheets for Beckwith Products Company are presented below.

2009 2008 Assets:

Cash $ 36,400 $ 25,000 Accounts receivable 63,000 78,000 Inventory 45,300 36,000 Property, plant, and equipment 221,000 153,000 Accumulated depreciation (30,000) (20,000)

Total assets $335,700 $272,000 Liabilities and Equity:

Accounts payable $ 13,100 $ 11,000 Interest payable 13,500 8,000 Wages payable 4,100 9,000 Notes payable 75,000 90,000 Common stock 90,000 50,000 Retained earnings 140,000 104,000 Total liabilities and equity $335,700 $272,000 Additional information:

. Net income for 2009 was $52,000.

. Cash dividends of $16,000 were declared and paid during 2009.

. During 2009, Beckwith issued $20,000 of notes payable and repaid $35,000 principal relating to notes payable.

. Common stock was issued for $40,000 cash.

. Depreciation expense was $10,000, and there were no disposals of equipment.

Required:

. Prepare a statement of cash flows (indirect method) for Beckwith Products for 2009.

. Compute the following cash-based performance measures:

a. Free cash flow

b. Cash flow adequacy (assume that the average amount of debt maturing over the next five years is $85,000).

. List the major reasons for the difference between net income and net cash flow from operating activities.

Exercise