Use the financial data presented to prepare Cline Custom Bicycles’ statement of cash flows for the year ended December 31, 2015

ANALYZING CLINE CUSTOM BICYLES’ CASH FLOWS

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Darin Cline formerly an internationally renowned professional bicycle racer, owns and operates Cline Custom Bicycles – a firm that builds and markets custom bicycles to shops throughout the United States. Darin has just received his firm’s 2015 income statement, balance sheet, and statement of retained earnings, shown in what follows along with the firm’s 2014 balance sheet. Although he is quite pleased to have achieved record earnings of $106,000 in 2015, Darin is concerned about the firm’s cash flows. Specifically, he is finding it more and more difficult to pay the firm’s bills in a timely manner. To gain insight into the firm’s cash flow problems, Darin is planning to have the firm’s 2015 statement of cash flows prepared and evaluated. Income Statement ($000) Cline Custom Bicycles For the year ended December 31, 2015 Sales revenue Less: Cost of goods sold Gross profits Less: Operating expenses Selling expense General & administrative Depreciation Total Operating profits Less: Interest expense Net profit before taxes Less: Taxes (30%) Net profit after tax

$300 270 30 $2,000 1,420 780

600 180 29 151 45 $106

Balance Sheets ($000) Cline Custom Bicycles December 31 Assets 2015 2014 Current assets Cash $ 30 $ 50 Marketable securities 10 20 Accounts receivable 320 350 Inventories 460 320 Total current assets $ 820 $ 740 Gross fixed assets $ 560 $ 520 Less: Accumulated depreciation 180 150 Net fixed assets $ 380 $ 370 Total Assets $ 1,200 ====== $ 1,110 ====== Liabilities and stockholder’s equity Current liabilities Accounts payable $ 390 $ 320 Notes payable 110 90 Accruals 20 20 Total current liabilities $ 520 $ 430 Long term debt $ 320 $ 350 Total liabilities $ 840 $ 780 Stockholders’ equity Common stock (500,000 shares at $.20 par value) $ 100 $ 100 Paid-in capital in excess of par 150 150 Retained earnings 110 80 Total stockholders’ equity $ 360 $ 330 Total liabilities and stockholders’ equity $1,200 ====== $1,110 ===== Statement of Retained Earnings ($000) For the year ended December 31, 2013

Retained earnings balance (January 1, 2013) $ 80 Plus : Net profits after taxes (for 2013) 106 Less : Cash dividends on common stock (paid during 2013) (76) Retained earnings balance (December 31, 2013) $ 110 ===== Required a. Use the financial data presented to prepare Cline Custom Bicycles’ statement of cash flows for the year ended December 31, 2015 (using indirect method). b. Evaluate the statement prepared b.1. In light of Clines’ current cash flow difficulties b.2. On the basis of your evaluation in b.1, what recommendations might you offer Darin Cline?