financial reporting 1553794

Founded in the early 1980s, theVermont Teddy Bear Co.designs and manufactures American-made teddy bears and markets them primarily as gifts called Bear-Grams or Teddy Bear-Grams. Bear-Grams are personalized teddy bears delivered directly to the recipient for special occasions such as birthdays and anniversaries. TheShelburne, Vermont, company’s primary markets are New York, Boston, and Chicago. Sales have jumped dramatically in recent years. Such dramatic growth has significant implications for cash flows. Provided below are the operating sections of the most recent two years’ statements of cash flows, along with summary information about investing and financing activities for those years.

1. (a) Note that net income in the current year was only $17,523 compared to prior-year income of $838,955, but cash flow from operations was $236,480 in the current year and a negative $700,957 in the prior year. Explain the causes of this apparent paradox.(10 points).

   1. (b) Using the information provided by the Statement of Cash Flows, specify two questions that you would ask management if you were a financial analyst attempting to issue a buy / sell recommendation to clients. Explain why you would ask each question.(10 points)