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

question 64

Essay

Use the following financial statements and additional information to (1) prepare a complete statement of cash flows for the year ended December 31, 20X2. The cash provided or used by operating activities should be reported using the direct method, and (2) compute the company's cash flow on total assets ratio for 20X2.
$\begin{array}{c} \text {Derby Company Balance Sheets}\\ \text {At December 31}\\\begin{array}{|l|l|l|}\hline & 20 \mathrm{X} 2 & \text { 20X1 } \\\hline \text { Assets: } & & \\\hline&\$&\$\\ \text { Cash } & \$ 85,600 & \$ 65,200 \\\hline \text { Accounts receivable, net } & 72,850 & 56,750 \\\hline \text { Merchandise inventory } & 157,750 & 144,850 \\\hline \text { Prepaid expenses } & 6,080 & 12,680 \\\hline \text { Equipment } & 280,600 & 145,600 \\\hline \text { Accumulated depreciation-Equipment } & \underline{(80,600)} & \underline{(97,600)} \\\hline \text { Total assets } & \underline{\$ 522,280} & \underline{\$ 427,480 }\\\hline\\\hline \text { Liabilities: } & & \\\hline&\$&\$\\ \text { Accounts payable } & 52,850&45,450 \\\hline \text { Income taxes payable } &15,240 &12,240 \\\hline&\underline{\quad\quad}&\underline{\quad\quad}\\ \text { Notes payable (long term) } &\underline{59,200 }&\underline{ 79,200} \\\hline \text { Total liabilities } & \$127,290& \$136,890 \\\hline \text { Equity: } & \\\hline \text { Common stock } & 200,000&150,000 \\\hline \text { Paid-in capital in excess of par } &53,000 &40,000 \\\hline \text { Retained earnings } &\underline{ \$ 141,980 }& \underline{100,590}\\\hline \text { Total equity } &\underline{ \$ 394,990 }& \underline{\$290,590 }\\\hline \text { Total liabilities and equity } &\underline{\$522,280}& \underline{\$427,480} \\\hline\end{array}\end{array}$ $\begin{array}{c}\text {Derby Company}\\ \text {Income Statement}\\\text {For Year Ended December 31,20X2 }\\\begin{array}{|l|l|cc|} \hline \text { Sales } & \text { } &\$488,000\\\hline \text {Cost of goods sold } & \$212,540& \text { }\\\hline \text { Depreciation expense } & 43,000\text { }\\ \hline\text { Other operating expenses } & 106,260& \text { }\\\hline&\underline{\quad\quad}&\\ \text { Interest expense } &\underline{4,600 } & (368,200)\\\hline \text {Other gains (losses): } & \text { } & \text { }\\\hline&&\underline{\quad\quad}\\ \text { Gain on sale of equipment } & \text { } & \underline{4,700 }\\ \hline\text {Income before taxes } & \text { } &124,500\\\hline&&\underline{\quad\quad}\\ \text {Income taxes expense } & \text { } & \underline{41,100 }\\\hline&&\$\underline{\quad\quad}\\ \text {Net income } & \text { } &\underline{83,400 }\\\hline \end{array}\end{array}$
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.

Identify key indicators of a company's future financial performance.

Understand the definition and purposes of the statement of cash flows.

Recognize the classification of cash receipts and payments in the appropriate section of the statement of cash flows.

Identify the impact of certain activities on the statement of cash flows that do not result in cash movements.

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Definitions:

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Predictions or forecasts about catastrophic future events leading to severe disruption or destruction.

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