$2.$

Quevedo,Inc.

Balance Sheet

At December $31,$

Assets $20232022$

Cash $ $29,074$ $$11,550$

Accounts receivable $3,2502,710$

Inventory $7,8977,450$

Prepaid expenses $5,8006,050$

Equipment $102,00075,500$

Accumulated depreciation$$Equipment $(25,200)(9,100)$

Total assets $$122,821$ $$94,160$

Liabilities and Stockholders$$ Equity

Accounts payable $ $1,150$ $ $2,450$

Income taxes payable $9,2517,200$

Dividends payable $27,00027,000$

Salaries and wages payable $7,2501,280$

Interest payable $1880$

Note payable $10,0000$

Preferred stock, no par, $$6$ cumulative, $3,000$ and $2,800$ shares issued, respectively $15,00014,000$

Common stock, $$1$ par$25,930$ shares issued and outstanding $25,93025,930$

Additional paid$-$in capital$$treasury stock $2500$

Retained earnings $26,80216,800$

Less treasury stock $0(500)$

Total liabilities and stockholders$$ equity $$122,821$ $$94,160$

Quevedo, Inc.

Income Statement

Year Ended December $31,2023$

Sales $$485,625$

Cost of goods sold $222,694$

Gross profit $262,931$

Operating expenses

Salaries and wages expense $$147,979$

Depreciation expense $17,600$

Other operating expenses $48,186213,765$

Income from operations $49,166$

Other expenses

Interest expense $ $413$

Loss on disposal of plant assets $2,5002,913$

Income before income tax $46,253$

Income tax expense $9,251$

Net income $ $37,002$

Additional information:

$1.$ Equipment $($cost $$4,500$ and book value $$3,000)$ was disposed of at the beginning of the year for

$$500$ cash and replaced with new equipment purchased for $$4,000$ cash.

Additional equipment was bought for $$14,000$ on January $1,2023.$ A $$2,000$ cash down$-$payment

was made and a $$12,000$ note payable was signed. The terms provide for equal semi$-$annual

installment payments of $$2,000$ on July $1$ and January $1$ of each year, plus interest of $5\%$ on the

outstanding principal balance.

$3.$ Other equipment was bought for $$13,000$ cash.

$4.$ Dividends were declared on the preferred and common stock on November $15,2023,$ to be paid

on December $15,2023.$ The prior year declared dividend was paid in January $2023.$

$5.$ Accounts payable relate only to merchandise creditors.

$6.$ Prepaid expenses relate only to other operating expenses.

A$.$ Prepare a statement of cash flows, indirect method, for Quevedo Corp. IN GOOD FORM.

$$ I want to see how you obtained the dollar amounts for each line item on the SCF$.$ Your

provided work will determine $2/3$ of the total points you earn for this question and the

formal SCF is about $1/3$ of the points.

B$.$ Management is considering borrowing on a bank loan to purchase another piece of

equipment for $$20,000.$

$$ What impact would this have on the balance sheet and income statement?

$$ Would this affect these ratios $($and how$)?$

o Current ratio

o Debt to assets

o Return on assets

o Return on common shareholders$$ equity

$$ What would justify the acquisition of more equipment?

$$ What alternatives are there be to bank financing?