atement of Cash Flows: Indirect Method PAGE 20 Th e comparative balance sheets f

Question

atement of Cash Flows: Indirect Method PAGE 20 Th e comparative balance sheets for Ned Houston, Inc., for December 31, 2016 and 2015 follow. Additional information about Ned Houston's operations during 2016 is as follows: (a) net income, $28,000; (b) building and equipment depreciation expense amounts, $15,000 and $3,000, respectively; (c) equipment that cost $13,500 with accumulated depreciation of $12,500 sold at a gain of $5,300; (d) equipment purchases, $12,500; (e) patent amortization, $3,000; purchase of patent, $1,000; (f) funds borrowed by issuing notes payable, $25,000; notes payable repaid, $15,000; (9) land and building purchased for $162,000 by signing a mortgage for the total cost; (h) 1,500 shares of $20 par value common stock issued for a total of $50,000; and (i) paid cash dividend, $9,000 REQUIRED 1. Using the indirect method, prepare a statement of cash flows for Ned Houston. 2. Compute and assess cash flow yield and free cash flow for 2011. (Note: Round cash flow yield to one decimal place.)

Explanation / Answer

Ned Houston Inc

Statement of Cash Flows

For the Year ended December 31,2016

A. Cash Flows from Operating Activity

Net Income

$      28,000.00

Adjustments to reconcile net income to net cash flows from Operating Activities

Depreciation expense

$      18,000.00

Gain on sale of Investment

$      (5,300.00)

Patient Amortization

$        3,000.00

Cahnges In Current Assets and Current Liabilities

Increase in Accounts Receivable

$    (27,000.00)

Decrease in Inventory

$      25,000.00

Decrease in Prepaid Expenses

$      20,000.00

Decrease in Accounts Payable

$    (26,000.00)

Increase in Notes Payable

$     10,000.00

Decrease in Accrued Liability

$    (12,300.00)

$        5,400.00

Net cash flow from Operating activities

$      33,400.00

B. Cash flows from Investing Activities

Purchase of Patient

$      (1,000.00)

Purchase of Equipment

$    (12,500.00)

Purchase of Land

$    (25,000.00)

Purchase of Building

$ (137,000.00)

Sale Of Equipment

$        6,300.00

Net Cash flows from Investing activities

$ (169,200.00)

C. Cash Flows from Financing activities

Issuance of Common Stock

$      30,000.00

Proceeds from Mortgage issue

$    162,000.00

Proceeds from Additional Paid In capital

$      20,000.00

Dividends Paid

$      (9,000.00)

Cash flows from Financing activities

$    203,000.00

Net Increase (Decrease) in Cash [A+B+C]

$      67,200.00

Cash at the beginning

$      27,360.00

Cash at the end

$      94,560.00

Free Cash Flow

Operating Cash flow - Cash used in Investing Activities

5400-169200

$                                                                           (163,800.00)

Ned Houston Inc

Statement of Cash Flows

For the Year ended December 31,2016

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