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

question 231

Essay

Use the following financial statements and additional information to (1) prepare a statement of cash flows for the year ended December 31, Year 2 using the indirect method, and (2) compute the company's cash flow on total assets ratio for Year 2.




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:

Tabula Rasa

(Latin.) In Locke, the “blank tablet” metaphor of the mind, in opposition to the doctrine that there are innate ideas. In other words, the mind is a “blank” at birth, and everything we know must be “stamped in” through experience.

Innate Ideas

Innate Ideas are concepts or knowledge presumed to be present in the mind at birth, not derived from experience but innate in the human mind.

John Locke

A 17th-century English philosopher known for his work in political philosophy, empiricism, and social contract theory.

Two-Worlds Assumption

The philosophical concept that reality is divided into two distinct realms or worlds, such as the physical and the spiritual, or the empirical and the ideal.