The comparative balance sheets for Arif Fabrics, Inc, for December 31, 2010 and 2009 appear below:..

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The comparative balance sheets for Arif Fabrics, Inc, for December 31, 2010
and 2009 appear below:

2010
2009
Assets
Cash
$ 94,560 $ 27,360
Accounts receivable (net)
102,430
75,430
Inventory
112,890
137,890
Prepaid expenses
— 20,000
Land
25,000
—
Building
137,000
—
Accumulated depreciation–building (15,000) —
Equipment
33,000
34,000
Accumulated depreciation–equipment (14,500) (24,000)
Patents
4,000 6,000
Total assets
$479,380
$276,680
Liabilities and Stockholders’ Equity
Accounts payable $
10,750 $
36,750
Notes payable (current) 10,000 —
Accrued liabilities
—
12,300
Mortgage payable
162,000 —
Common stock, $10 par value 180,000 150,000
Additional paid-in capital
57,200
37,200
Retained earnings
59,430
40,430
Total liabilities and stockholders’ equity $479,380 $276,680
Additional information about Arif Fabrics’s operations during 2010 is as
fol-
lows: (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) equip-
ment 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; (g) 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 Arif
Fabrics.
2. Why did Arif Fabrics have an increase in cash of $67,200 when it recorded
User insight net income of only $28,000? Discuss and interpret.
3. Compute and assess cash flow yield and free cash flow for 2010. What is your
User insight assessment of Arif’s cash-generating ability?

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