Question

The comparative balance sheets for Karidis Ceramics, Inc., for December
31, 2012 and 2011, are presented on the next page. During 2012, 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.
Karidis Ceramics, Inc.
Comparative Balance Sheets
December 31, 2012 and 2011
2012 2011
Assets
Cash $ 257,600 $ 305,600
Accounts receivable (net) 738,800 758,800
Inventory 960,000 800,000
Prepaid expenses 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 $ 470,800 $ 660,800
Notes payable (current) 40,000 160,000
Accrued liabilities 10,800 20,800
Mortgage payable 1,080,000 800,000
Bonds payable 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
Required
1. Using the indirect method, prepare a statement of cash flows for Karidis
Ceramics, Inc.
2. 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. Compute and assess cash flow yield and free cash flow for 2012. Why is each
of these measures important in assessing cash-generating ability?

Answer 1

The comparative balance sheet for Karidis Ceramics, inc.,for December 31, 2012 and 2011,are represented on next page.
statement of 1. Using the inchrect method, prepare a cash flows for kasidis Ceramics, Inc. KARIDIS Ceramics, Inc. statement of cash flow for the year ended December 31, 2012 operating activities: Net Income 96000 Depoeciation 140000 Amortisation des Intangible assets 20.000 Gain on sale of investments -34000 Decrease in Accounts secciable 20,000 Increase in Inventory -160.000 Decdcase in prepaid Expense 12000 Decrease in Account papable -190000 pecrease in -10000 Accoued Liabilities. Decrease in notes payable. -120000 -448000 Cash flow from operating Activities -226000 34000 Investing Activities sale od Investment Cash flow of Investing activities $34000

Financial Activities: Dividends said - 36000 Issue of long team bonds (240000 I purchase of treasury stocks - 20000 Repayment of Mostage -40000 144000 Cash flow from financial activities. $144,000 18000 Net change in Capital Beginning Cash balance Ending Cash Balance 305600 257000 Nou Cash Toonsactions. puschase Cond of building by issue o Mortage 320,000 supporting information: purchase of investments = $116,000 sole of investment = $150,000 Net sale of investments & sale of investments - purchase of investments. = $150,000 - $116,000 = $ 34,000

2. why did Karidis cesamies experience a decscasein cash in a year in which it had a net income of $96,000? Discuss and interpret. The net change in Cash flow is ($48,000), whereas the net income is $96,000. This has been possible due to the following seasons: let income $46,0008 Book adjustment of non cash transactions $126,000 changes in Cussent assets and Cutsent Gabilities C$448,000) , Cash out flow from investing activities $34,000 Cash inflow from financingt activities $144,000 Net change in cash ($48,000). 3. Compute and assess cash flow yield and foce cash flow for 2012, why is each of these measure important in assessing Cash. generating ability ? cash flow yield = net cash flow from operating activities / set income. = ($226,000)/96,000 = 2.35 Times.

Foce cash flow = net cash flow from operating activities - Dividends - purchases of plant Assets of sale of plant Assets = ($226,000) -36,000 = ($262,000). The above two financial ratios indicate that the Company does not have sufficient Cash available with them. The Company had to issue long term bonds to repay Note payable, Accounts payable and Mostage (partly).