Selected financial information for Frank Corporation is presented below: Selected 2014 transactions are as follows:

a. Purchased investment securities for $ 5,000 cash.

b. Borrowed $ 15,000 on a two- year, 8 percent interest- bearing note.

c. During 2014, sold machinery for its carrying amount; received $ 11,000 in cash.

d. Purchased machinery for $ 50,000; paid $ 9,000 in cash and signed a four- year note payable to the dealer for $ 41,000.

e. Declared and paid a cash dividend of $ 10,000 on December 31, 2014. Selected account balances at December 31, 2013 and 2014 are as follows:

One- fourth of the sales and one- third of the purchases were made on credit.

Required:
1. Prepare a statement of cash flows for the year ended December 31, 2014. Use the indirect method to compute the cash flows from operating activities. Include any additional required note disclosures.
2. Compute and explain the quality of earnings ratio and the capital expenditures ratio.

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December 31 2014 $76,000 17000 2013 $21,000 12,000 Cash Trade receivables Inventory Trade payables Accrued wages payable Income taxes payable 60,000 5200010,000 7000 800 1,000 3,000 5,000 FRANK CORPORATION Statement of Earnings For the Year Ended December 31, 2014 Sales revenue Cost of sales Gross profit Expenses $400,000 268,000 132,000 Salaries and wages Depreciation Rent (no accruals) Interest (no accruals) Income tax Total expenses $51,000 9,200 5,800 12,200 $11,800 90,000 $ 42,000 Net eamings