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Directions: Use the data from the Vermont Teddy Bear Company to answer parts (a) and (b) presented below the case. Instructions: A.) Note that net

Directions:

Use the data from the Vermont Teddy Bear Company to answer parts (a) and (b) presented below the case.

Instructions:

A.) Note that net income in the current year was only $17,523 compared to prior-year income of $838,955, but cash flow from operations was $236,480 in the current year and a negative $700,957 in the prior year. Explain the causes of this apparent paradox.

B.) Using the information provided by the Statement of Cash Flows, specify two questions that you would ask management if you were a financial analyst attempting to issue a buy / sell recommendation to clients. Explain why you would ask each question.

**Provided below are the operating sections of the most recent two years' statements of cash flows, along with summary information about investing and financing activities for those years.

Current Year

Prior Year

Cash flow from operating activities:

Net income

$17,523

$838,955

Adjustments to reconcile net income to net

Cash provided by operating activities

Deferred income taxes

(69,524)

(146,590)

Depreciation and amortization

316,416

181,348

Changes in current assets and current liabilities:

Accounts receivable, trade

(38,267)

(25,947)

Inventories

(1,599,014)

(1,289,293)

Prepaid and other current assets

(444,794)

(113,205)

Deposits and other assets

(24,240)

(83,044)

Accounts payable

2,017,059

(284,567)

Accrued expenses

61,321

170,755

Accrued interest payable, debentures

(58,219)

Other

(8,960)

Income taxes payable

117,810

Net Cash provided by (used for)

operating activities

236,480

(700,957)

Net cash used for investing activities

(2,102,892)

(4,422,953)

Net cash (used for) provided by financing activities

(315,353)

9,685,435

Net change in cash and cash equivalents

(2,181,765)

4,561,525

Other Information:

Current Liabilities

4,055,465

1,995,600

Total Liabilities

4,620,085

2,184,386

Net Sales

20,560,566

17,025,856

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