E 1 2- 3 2B (L earn i ng Obj ec tiv e 3: Ev al u a t e a s t a t e m en t o f cash fl o w s —i nd i

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E12-32B (Learning Objective 3: Evaluate a statement of cash flows—indirect method) Consider three independent cases for the cash flows of Texas Tires Corp. For each case, identify from the statement of cash flows how Texas Tires Corp. generated the cash to acquire new plant assets.

Rank the three cases from the most healthy financially to the least healthy.

 

 

 

Case A

Case B

Case C

 

Cash flows from operating  activities:

 

 

 

 

Net income

$   14,000

$    14,000

$   14,000

 

Depreciation and amortization

17,000

17,000

17,000

 

Increase in current assets

(1,000)

(7,000)

(3,000)

 

Decrease in current liabilities

(3,000)

(27,000)

(4,000)

 

 

27,000

(3,000)

24,000

 

Cash flows from investing  activities:

 

 

 

 

Acquisition of plant assets Sales of plant assets (141,000)

148,000 (141,000)

28,000 (141,000)

47,000

7,000

(113,000)

(94,000)

 

Cash flows from financing  activities:

 

 

 

 

Issuance of stock

26,000

149,000

104,000

 

Payment of debt

(38,000)

(28,000)

(45,000)

 

 

(12,000)

121,000

59,000

 

Net increase (decrease) in cash

$   22,000

$        5,000

$ (11,000)

 

 

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