Chaplin Arts, Inc.’s comparative balance sheets for December 31, 2014 and 2013, follow:

Chaplin Arts, Inc.’s comparative balance sheets for December 31, 2014 and 2013, follow:

     AND SO ON.................

The following additional information about Chaplin Art’s operations during 2013 is available: 

(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; (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 dividends, $9,000.

Required:

1.  Using the indirect method, prepare of a statement of cash flows for Chaplin Arts.

2.  Why did Chaplin Arts have an increase in cash of $67,200 when it recorded net income of only $28,000?  Discuss and interpret.

3.  Compute and assess cash flow yield and free cash flow for 2014.  (Round to one decimal place.)  What is your assessment of Chaplin Arts’ cash-generating ability? 

Check Figures:

Net Cash Flows from Operating Activities:  $23,400

Net Cash Flows from Investing Activities:   ($7,200)

Net Cash Flows from Financing Activities:  $51,000