Use the Following Financial Statements and Additional Information to (1)

question 157

Essay

Use the following financial statements and additional information to (1) prepare a statement of cash flows for the year ended December 31, 20X2 using the indirect method, and (2) compute the company's cash flow on total assets ratio for 20X2.
$\begin{array}{c} \text {Derby Company}\\ \text { Balance Sheets}\\ \text {At December 31}\\\begin{array}{|l|l|l|}\hline & 20 \mathrm{X} 2 & \text { 20X1 } \\\hline \text { Assets: } & & \\\hline&&\\\hline&\$&\$\\ \text { Cash } & \$ 85,600 & \$ 65,200 \\\hline \text { Accounts receivable, net } & 72,850 & 56,750 \\\hline \text { Merchandise inventory } & 157,750 & 144,850 \\\hline \text { Prepaid expenses } & 6,080 & 12,680 \\\hline \text { Equipment } & 280,600 & 145,600 \\\hline \text { Accumulated depreciation-Equipment } & \underline{(80,600)} & \underline{(97,600)} \\\hline \text { Total assets } & \underline{\$ 522,280} & \underline{\$ 427,480 }\\\hline\\\hline \text { Liabilities: } & & \\\hline&\$&\$\\ \text { Accounts payable } & 52,850&45,450 \\\hline \text { Income taxes payable } &15,240 &12,240 \\\hline&\underline{\quad\quad}&\underline{\quad\quad}\\ \text { Notes payable (long term) } &\underline{59,200 }&\underline{ 79,200} \\\hline \text { Total liabilities } & \$127,290& \$136,890 \\\hline \text { Equity: } & \\\hline \text { Common stock } & 200,000&150,000 \\\hline \text { Paid-in capital in excess of par } &53,000 &40,000 \\\hline \text { Retained earnings } &\underline{ \$ 141,980 }& \underline{100,590}\\\hline \text { Total equity } &\underline{ \$ 394,990 }& \underline{\$290,590 }\\\hline \text { Total liabilities and equity } &\underline{\$522,280}& \underline{\$427,480} \\\hline\end{array}\end{array}$
$\begin{array}{c}\text { Derby Company}\\\text { Income Statement}\\\text { For Year Ended December 31, 20X2}\\\begin{array}{|l|l|l|}\hline \text { Costes } & &\$488,000\\\hline \text { Depreciation expense } & 43,000 \\\hline \text { Other operating expenses } & 106,260 \\\hline&\underline{\quad\quad}\\ \text { Interest expense } &\underline{6,400}&(368,200)\\\hline \text { Other gains (losses): } & \\\hline&&\underline{\quad\quad}\\ \text { Gain on sale of equipment } &&\underline{4,700} \\\hline\text { Income before taxes } &&124,500 \\\hline&&\$\underline{\quad\quad}\\ \text { income taxes expense } &&\underline{41,100} \\\hline&&\$\underline{\quad\quad}\\ \text { Net income}&&\underline{83,400}\\\hline\\\hline\end{array}\end{array}$ Additional Information
a. A $20,000 note payable is retired at its carrying value in exchange for cash.
b. The only changes affecting retained earnings are net income and cash dividends paid.
c. New equipment is acquired for $120,000 cash.
d. Received cash for the sale of equipment that had cost $85,000, yielding a gain of $4,700.
e. Prepaid expenses relate to Other Expenses on the income statement.
f. All purchases and sales of merchandise inventory are on credit.

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Definitions:

Commercial Paper

Short-term, unsecured debt issued by companies to finance immediate liquidity needs.

Short-Term Security

A financial instrument that typically matures in one year or less.

Well-Known Companies

Firms that have established a strong brand, reputation, and presence in their respective markets, often leading to a wider recognition among the public and investors.

Federally-Sponsored Agency Debt

Securities issued by government-sponsored enterprises to finance activities benefiting the public, with varying degrees of government backing.