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Prepare a statement of cash - ERNEST BANKS COMPANY

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

Solution Preview

ERNEST BANKS COMPANY
Comparative Balance Sheets
December 31, 2006 and 2005
Increase Activity
2006 2005 (Decrease)
Assets
Cash 23,000 13,000 10,000
Accounts receivable 24,000 33,000 -9,000 Operating
Merchandise Inventory 20,000 27,000 -7,000 Operating
Prepaid expenses 20,000 13,000 7,000 Operating
Land 40,000 40,000 0 Investing
Property, plant, and equipment 200,000 225,000 -25,000 Investing
Accum. Depreciation-Equipment -50,000 -67,500 17,500 Operating
Total assets 277,000 283,500

Liabilities and Equity
Accounts payable 9,000 18,500 -9,500 Operating
Accrued expense payable 9,500 7,500 2,000 Operating
Interest payable 1,000 1,500 -500 Operating
Income taxes payable 3,000 2,000 1,000 Operating
Bonds payable 50,000 80,000 -30,000 Financing
Common stock 123,000 105,000 18,000 Financing
Retained earnings 81,500 69,000
Total liabilities and equity 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: ...

Solution Summary

This solution is comprised of a detailed explanation to prepare a statement of cash for ERNEST BANKS COMPANY.

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