Ernest Banks Company
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The financial statements of Ernest Banks Company appear below.
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.
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Solution Summary
This solution is comprised of a detailed explanation to prepare a statement of cash flows for Ernest Banks Company for the year ended December 31, 2006, using the indirect method.
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The financial statements of Ernest Banks Company appear below.
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 ( ( ...
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