1. Prepare a proforma statement of cash flows for 2005 using the indirect method and the direct method

December 31, 2005 (Pro-forma) Balance Sheet as at December 31, 2004 and 2005 December 31, 2004 (Actual) Assets Cash $113,000 Accounts receivable 69,500 Inventories-raw materials 55,000 Inventories-finished goods Prepaid insurance Property, plant and equipment 212,500 Accumulated depreciation (10,625) Land Patent 100,000 Total assets Liabilities and Owners' Equity Taxes payable Short term debt Deferred income taxes Notes payable (10%) Long-term debt (10%) Dividends payable Common stock Retained earnings Treasury stock Total liabilities and owners' equity $ 9,490 139,530 75,450 104,680 65,000 1.121,906 (56.000) 250,000 75.000 S1.783.150 Miche 9,950 200,000 26,730 425,000 510,000 12,000 500,000 125,470 (26,000) $1.783.150 G 10 Income Statement for the years ended Dec. 31, 2004 and 2005 December 31, 2004 (Actual) Sales $754,500 Material (195,000) Labor (275,000) Rent (50,000) Utilities (30,000) Depreciation (10,625) Gross margin 193,875 Advertising (22,500) Kesearch and development Insurance Amortization of patent (25,000) Selling and administration expenses (75,000 Gain on sale of equipment Interest expense (750) Prototypes (23,750) Legal fees (7500) Income before taxes 39,375 Incotne taxes (10,900) Net income $ 28475 December 31, 2005 (Pro-forma) $1,886,250 (452,700) (660,000) (25,000) (82,000) (61.625 604,925 (70,000) (63,250) (32,500) (25,000) (195,7501 24,250 (58,750) 183,925 (64,930) $118.995 Finished goods inventory includes $5,000 of depreciation. December 31, 2005 (Pro-forma) Balance Sheet as at December 31, 2004 and 2005 December 31, 2004 (Actual) Assets Cash $113,000 Accounts receivable 69,500 Inventories-raw materials 55,000 Inventories-finished goods Prepaid insurance Property, plant and equipment 212,500 Accumulated depreciation (10,625) Land Patent 100,000 Total assets Liabilities and Owners' Equity Taxes payable Short term debt Deferred income taxes Notes payable (10%) Long-term debt (10%) Dividends payable Common stock Retained earnings Treasury stock Total liabilities and owners' equity $ 9,490 139,530 75,450 104,680 65,000 1.121,906 (56.000) 250,000 75.000 S1.783.150 Miche 9,950 200,000 26,730 425,000 510,000 12,000 500,000 125,470 (26,000) $1.783.150 G 10 Income Statement for the years ended Dec. 31, 2004 and 2005 December 31, 2004 (Actual) Sales $754,500 Material (195,000) Labor (275,000) Rent (50,000) Utilities (30,000) Depreciation (10,625) Gross margin 193,875 Advertising (22,500) Kesearch and development Insurance Amortization of patent (25,000) Selling and administration expenses (75,000 Gain on sale of equipment Interest expense (750) Prototypes (23,750) Legal fees (7500) Income before taxes 39,375 Incotne taxes (10,900) Net income $ 28475 December 31, 2005 (Pro-forma) $1,886,250 (452,700) (660,000) (25,000) (82,000) (61.625 604,925 (70,000) (63,250) (32,500) (25,000) (195,7501 24,250 (58,750) 183,925 (64,930) $118.995 Finished goods inventory includes $5,000 of depreciation