28 ROBLEM 7-3 concluded) CK 2 CFO, $0 Financial Statement Analysis Year 1 $ 19,000 10,000 50,000 21,000 ce Accounts payable...................... Bonds payable.. Common stock. Retained earnings. Treasury stock....... Total liabilities and equity............$100,000 Year 2 $ 12,000 30,000 61,000 28,000 (11,500) 7. Purchase of fixed assets for cash, $4,000. 8. Fixed assets are exchanged for bonds payable of $30,000. 9. Sale of investments for $9,000 cash. 10. Purchase of treasury stock for cash, $11,500.0 11. Retire bonds payable by issuing common stock, $10,000. Dar neder 12. Collections on accounts receivable, $65,000. 13. Sold unissued common stock for cash, $1,000. $119,500 Additional data for the period January 1, Year 2, through December 31, Year 2, are: 1. Sales on account, $70,000. 2. Purchases on account, $40,000. 3. Depreciation, $5,000. 4. Expenses paid in cash, $18,000 (including $4,000 of interest and $6,000 in taxes). 5. Decrease in inventory, $2,000. 6. Sales of fixed assets for $6,000 cash; cost $21,000 and two-thirds depreciated (loss or gain is included in income).J Required: a. Prepare a statement of cash flows (indirect method) for the year ended December 31, Year 2. b. Prepare a side-by-side comparative statement contrasting two bases of reporting: (1) net income and (2) cash flows from operations. c. Which of the two financial reports in (b) better reflects profitability? Explain.

Additional data for the period January 1, Year 2, through December 31, Year 2, are: 1. Sales on account $70,000 2. Purchases on account, $40,000 3. Depreciation, $5,000. 4. Expenses paid in cash, $18,000 (including $4,000 of interest and $6,000 in taxes). 5. Decrease in inventory, $2,000. 6. Sales of fixed assets for $6,000 cash; cost $21,000 and two-thirds depreciated (loss or gain is includad in income). 7. Purchase of fixed assets for cash, $4,000. 8. Fixed assets are exchanged for bonds payable of $30,000. 9. Sale of investments for $9,000 cash. 10. Purchase of treasury stock for cash, $11,500. 11. Retire bonds payable by issuing common stock, $10,000. 12. Collections on accounts receivable, $65,000. 13. Sold unissued common stock for cash, $1,000. Requitired: a. Prepare a statement of cash flows (indirect method) for the year ended December 31, Year 2. b. Prepare a side-by-side comparative statement contrasting two bases of reporting: (1) net income and (2) cast flows trom operations. c. Which of the two finaricial reports in (t) better reflects profitability? Explain