Presented below is Wall Art Company's statement of cash flows for the year ended December 31, 2006:
WALL ART, INC.
Statement of Cash Flows
For the Year Ended December 31, 2006
Cash Flows from Operating Activities:
Net income $ 263,158
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation expense $109,187
Amortization expense 38,911
Decrease in accounts receivable 61,497
Decrease in inventory 72,132
Decrease in accounts payable (21,790)
Decrease in accrued taxes (11,744) 68,189
Net Cash Provided by Operating Activities $116,223
Cash Flows from Investing Activities:
Capital expenditures $ (82,572)
Acquisitions of businesses (15,162)
Increase in other investments (16,614)
Proceeds from sale of assets 9,866
Net Cash Used by Investing Activities (104,482)
Cash Flows from Financing Activities
Decrease in short-term borrowings $ (106,854)
Payments of long-term debt (16,210)
Proceeds from sale of stock 17,798
Net Cash Used by Investing Activities (105,266)
Net Decrease in Cash $ (93,525)
Cash Balance, January 1, 2006 118,814
Cash Balance, December 31, 2006 $ 25,289
REQUIRED:
Answer the following questions:
1. For which of the three types of activities did Wall Art use the majority of its cash during 2006?
2. What does the answer in (1) tell you about Wall Art?
3. From which of the three types of activities did Wall Art obtain the majority of its cash during 2006?
4. Is the activity you identified in (3) an appropriate source of cash in the long run? Explain your reasoning.
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