Selected financial information for Frank Corporation is presented below.

Selected 2011 Transactions:

a. Purchased investment securities for \(\$ 5,000\) cash.

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

c. During 2011, 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, 2011.

Selected account balances at December 31, 2010 and 2011 are as follows:

Required:
1. Prepare a statement of cash flows for the year ended December 31, 2011. 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 acquisitions ratio.

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December 31 Casn Trade receivables Inventory Trade payables Accrued wages payable Income taxes payable 2011 2010 $76,000 $21,000 17,000 12,000 52,000 60.000 7,000 10,000 800 1,000 5,000 3,000 One-fourth of the sales and one-third of the purchases were made on credit. FRANK CORPORATION Income Statement For the Year Ended December 31, 2011 Sales revenue $400,000 Cost of sales 268,000 Gross profit 132,000 Expenses Salaries and wages $51,000 Depreciation 9,200 Ren: (nc accruals) 5.800 Interest (nc accruals) 12,200 Income tax $11,800 Total expenses, 90,000 Profit $ 42,000