Wu Company's income statement for the year ended December 31, 2011, and its comparative balance sheets as of December 31, 2011 and 2010, are presented on the next page(attached documents). During 2011, Wu Company engaged in these transactions: a. Sold at a gain of $7,000 furniture and fixtures that cost $35,600, on which it had accumulated depreciation of $28,800. b. Purchased furniture and fixtures in the amount of $39,600. c. Paid a $20,000 note payable and borrowed $40,000 on a new note. d. Converted bonds payable in the amount of $100,000 into 4,000 shares of common stock. e. Declared and paid $6,000 in cash dividends. Required 1. Using the indirected method, prepare a statement of cash flows for Wu Company. Include a supporting schedule of noncash investing transactions and financing transactions. 2. What are the primary reasons for Wu Company's large increase in cash from 2010 to 2011, despite its low net income? 3. Compute and assess cash flow yield and free cash flow for 2011. Compare and contrast what these two performance measures tell you about Wu Company's cash-generating ability.

Wu Company Income Statement For the Year Ended December 31, 2011 Sales $1,609,000 Cost of goods sold 1,127,800 Gross margin $ Operating expenses (including depreciation expense of $46,800) 481,200 449,400 Income from operations $ 31,800 Other income (expenses) Gain on sale of furniture and fixtures $7,000 Interest expense $(23,200) Income before income taxes (16,200) $ Income before taxes expense Net income 15,600 4,600 $ 11,000 Wu Company Comparative Balance Sheets December 31, 2011 and 2010 2010 2010 Assets Cash $164,800 $50,000 Accounts receivable (net) 165,200 200,00 Merchandise inventory 350,000 450,000 2,000 3,000 Furniture and furniture fixtures 148,000 144,000 Accumulated depreciation-furniture and fixtures (42,000) (24,000) $788,000 $823,000 $143,400 $200,400 Income taxes payable $1,400 4,400 Notes Payable (long-term) 40,000 20,000 Bonds payable 100,000 200,000 Common stock, $20 par value 240,000 200,000 Additional paid-in capital 181,440 121,440 81,760 76,760 $788,000 $823,000 Prepaid rent Total Assets Liabilities and Stockholders' Equity Accounts payable Retained earnings Total liabilities and stockholders' equity