(Preparation of a Statement of Cash Flows, Analysis) The comparative balance sheets of Menachem Corporation at the beginning and end of the year 2012 appear below.
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MENACHEM CORPORATION
BALANCE SHEETS
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Assets
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Dec. 31, 2012
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Jan. 1, 2012
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Inc./Dec.
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Cash
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$22,000
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$13,000
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$ 9,000 Inc.
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Accounts receivable
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106,000
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88,000
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18,000 Inc.
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Equipment
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37,000
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22,000
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15,000 Inc.
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Less: Accumulated depreciation-equipment
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17,000
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11,000
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6,000 Inc.
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Total
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$148,000
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$112,000
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Liabilities and Stockholders' Equity
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Accounts payable
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$20,000
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$15,000
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5,000 Inc.
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Common stock
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100,000
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80,000
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20,000 Inc.
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Retained earnings
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28,000
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17,000
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11,000 Inc.
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Total
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$148,000
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$112,000
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Net income of $34,000 was reported, and dividends of $23,000 were paid in 2012. New equipment was purchased and none was sold.
Instructions
(a) Prepare a statement of cash flows for the year 2012.
(b) Compute the current ratio (current assets 4 current liabilities) as of January 1, 2012, and December 31, 2012, and compute free cash flow for the year 2012.
(c) In light of the analysis in (b), comment on Menachem's liquidity and financial flexibility.