|
Year 1 |
Year 2 |
|
|
Accounts payable |
$ 19,000 |
$ 12,000 |
|
Bonds payable |
10,000 |
30,000 |
|
Common stock |
50,000 |
61,000 |
|
Retained earnings |
21,000 |
28,000 |
|
Treasury stock |
— |
(11,500) |
|
Total liabilities and equity |
100,000 |
$119,500 |
Additional data for the period January 1, Year 2, through December 31, Year 2, are:
1. Sales on account, $70,000.
2. Purchases on account, $40,000.
3. Depreciation, $5,000.
4. Expenses paid in cash, $18,000 (including $4,000 of interest and $6,000 in taxes).
5. Decrease in inventory, $2,000.
6. Sales of fixed assets for $6,000 cash; cost $21,000 and two-thirds depreciated (loss or gain is included in income).
7. Purchase of fixed assets for cash, $4,000.
8. Fixed assets are exchanged for bonds payable of $30,000.
9. Sale of investments for $9,000 cash.
10. Purchase of treasury stock for cash, $11,500.
11. Retire bonds payable by issuing common stock, $10,000.
12. Collections on accounts receivable, $65,000.
13. Sold unissued common stock for cash, $1,000.
Required:
a. Prepare a statement of cash flows (indirect method) for the year ended December 31, Year 2.
b. Prepare a side-by-side comparative statement contrasting two bases of reporting: (1) net income and (2) cash flows from operations.
c. Which of the two financial reports in (b) better reflects profitability? Explain.