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    Statement of Cash Flows for Ernest Banks

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    ERNEST BANKS COMPANY
    Comparative Balance Sheets
    December 31
    Assets 2006 2005
    Cash $ 23,000 $ 13,000
    Accounts receivable 24,000 33,000
    Merchandise inventory 20,000 27,000
    Prepaid expenses 20,000 13,000
    Land 40,000 40,000
    Property, plant, and equipment 200,000 225,000
    Less: Accumulated depreciation (50,000) (67,500)
    Total $277,000 $283,500
    Liabilities and Stockholders' Equity
    Accounts payable $ 9,000 $ 18,500
    Accrued expenses payable 9,500 7,500
    Interest payable 1,000 1,500
    Income taxes payable 3,000 2,000
    Bonds payable 50,000 80,000
    Common stock 123,000 105,000
    Retained earnings 81,500 69,000
    Total $277,000 $283,500
    ERNEST BANKS COMPANY
    Income Statement
    For the Year Ended December 31, 2006
    Revenues
    Sales $600,000
    Gain on sale of plant assets 2,500 $602,500
    Less: Expenses
    Cost of goods sold 500,000
    Operating expenses (excluding
    depreciation) 60,000
    Depreciation expense 7,500
    Interest expense 5,000
    Income tax expense 9,000 581,500
    Net income $ 21,000
    Additional information:
    1. Plant assets were sold at a sales price of $62,500.
    2. Additional equipment was purchased at a cost of $60,000.
    3. Dividends of $8,500 were paid.
    4. All sales and purchases were on account.
    5. Bonds were redeemed at face value.
    6. Additional shares of stock were issued for cash.
    Instructions
    Prepare a statement of cash flows for Ernest Banks Company for the year ended December 31,
    2006, using the indirect method.
    P14-8A Data for Ernest Banks Company is presented in P14-7A. Further analysis reveals the
    following.
    1. Accounts payable relates to merchandise creditors.
    2. All operating expenses, except depreciation expense, were paid in cash.
    Instructions
    Prepare a statement of cash flows for Ernest Banks Company for the year ended December 31, using the indirect method

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    The solution explains how to prepare a statement of cash flows for Earnest Banks using the indirect method

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