Question

BTN 16-5  Access the April 14, 2016, filing of the 10-K report (for year ending December 31, 2015) of Mendocino Brewing Company, Inc. (ticker: MENB), at SEC.gov.

Required

Does Mendocino Brewing use the direct or indirect method to construct its consolidated statement of cash flows?

For the year ended December 31, 2015, what is the largest item in reconciling the net income to net cash provided by operating activities?

In the recent two years, has the company been more successful in generating operating cash flows or in generating net income? Identify the figures to support the answer.

In the year ended December 31, 2015, what was the largest cash outflow for investing activities and for financing activities?

What item(s) does Mendocino Brewing report as supplementary cash flow information?

Does Mendocino Brewing report any noncash financing activities for 2015? Identify them, if any.

Answer 1

1) As per the latest 10-K report, Mendocino Brewing uses “Indirect Method” to prepare its cash flow statement. Under “Indirect Method”, the first line item in “Cash flow from Operating Statement” section is “Net Income”. Mendocino Brewing company’s cash flow statement starts with “Net income” that is “Indirect Method”.

2) The largest item in reconciling the net income is “Depreciation and Amortization” with an amount $1,226,200.

3) Net Income for past two years were $1,148,500 and $1,539,500 respectively, whereas Operating Cash for the same period were $1,105,900 and $793,400. This clearly proves the company’s improvement in collection of its operating cash compared to its net income. The net income has deteriorated, whereas operating cash flow has improved.

4) For the year 2015, there was only one cash outflow related to Investing Activity that amounted to $642,400. However, largest cash outflow relating to financing activity was $534,700 for “Repayment on long-term debts”.

5) Cash flow related to “Interest” and “Income Taxes” are reported as supplementary cash flow information.

6) “Seller financed assets” were reported as non-cash financing activity in 2015.