The comparative balance sheets for Karidis Ceramics, Inc., for December 31, 20x7 and 20x6 are presented on the next page. During 20x7, the company had net income of $96,000 and building and equipment depreciation expenses of $80,000 and $60,000, respectively. It amortized intangible assets in the amount of $20,000; purchased investments for $116,000; sold investments for $150,000, on which it recorded a gain of $34,000; issued

$240,000 of long-term bonds at face value; purchased land and a warehouse through a $320,000 mortgage; paid $40,000 to reduce the mortgage;

borrowed $60,000 by issuing notes payable; repaid notes payable in the amount of $180,000; declared and paid cash dividends in the amount of

$36,000; and purchased treasury stock in the amount of $20,000.

Required 1. Using the indirect method, prepare a statement of cash flows for Karidis Ceramics, Inc.

2. User Insight: Why did Karidis Ceramics experience a decrease in cash in a year in which it had a net income of $96,000? Discuss and interpret.

3. User Insight: Compute and assess cash flow yield and free cash flow for 20x7. Why is each of these measures important in assessing cash-generating ability?

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Karidis Ceramics, Inc. Comparative Balance Sheets December 31, 20x7 and 20x6 20x7 20x6 Assets Cash $ 257,600 $ 305,600 Accounts receivable (net) 738,800 758,800 Inventory Prepaid expenses 960,000 800,000 14,800 26,800 Long-term investments 440,000 440,000 Land 361,200 321,200 Building 1,200,000 920,000 Accumulated depreciation, building (240,000) (160,000) Equipment 480,000 480,000 Accumulated depreciation, equipment (116,000) (56,000) Intangible assets 20,000 40,000 Total assets $4,116,400 $3,876,400 Liabilities and Stockholders' Equity Accounts payable Notes payable (current) Accrued liabilities $ 470,800 $ 660,800 40,000 160,000 10,800 20,800 Mortgage payable Bonds payable 1,080,000 800,000 1,000,000 760,000 Common stock 1,300,000 1,300,000 Additional paid-in capital 80,000 80,000 Retained earnings 254,800 194,800 Treasury stock (120,000) (100,000) Total liabilities and stockholders' equity $4,116,400 $3,876,400