a. Prepare a statement of retained earnings for the year ended December 31, 2010The credit manager at First National Bank has just received the income statement and balance sheet for Magna Fax, Inc. for the year ended December 31,2010 (See Tables below). The bank requires the firm to report its earnings performance and financial position quarterly as a condition of a loan agreement. The bank's credit manager must prepare two key financial statements based on the information sent by Magna Fax, Inc. This will be passed on to the commercial loan officer assigned to this account, so that he may review the financial conditions of the firm.

Magna Fax, Inc,

Income Statement for the Year ending December 31st, 2010

Sales Revenue				$150,000
Cost of Goods Sold				$117,500
Gross Profits				$32,500
	Selling Expenses		$4,500
	General and Admin. Expenses	$4,000
	Depreciation Expense	$4,000
Operating Profits				$20,000
Interest Expense				$2,500
Net Profit before Taxes			$17,500
Taxes (40%)				$7,000
Net Profit after Taxes			$10,500

Magna Fax, Inc.,Balance Sheet

For the Years Ended December 31, 2009 and 2010

				2010			2009
Assets
Cash				$24,000			$21,000
Accounts Receivable		$45,000			$39,000
Inventory			$30,000			$27,000
	Gross fixed Assets	$42,000			$40,000
	Acc. Depreciation	$22,000			$18,000
Net fixed assets			$20,000			$22,000
Total Assets
Liabilities and Equity
Accounts Payable			$25,000			$30,000
Notes Payable			$50,000			$40,000
Accruals				$1,000			$2,000
Long-term Debts			$10,000			$8,000
Common Stock at par		$1,000			$1,000
Paid-in Capital in excess of par	$4,000			$4,000
Retained Earnings			$28,000			$24,000
Total Liabilities and Equity		$119,000			$109,000

a. Prepare a statement of retained earnings for the year ended December 31, 2010

b.Calculate the free cash flows generated by Magna as of end of December 31, 2010.