AC 313 Statement of Cash Flows Assessment (50 Points) Presented below are the balance sheets of Ace Corporation as of December 31, Year 1 and Year 2, and the income statement for the year ended December 31, Year 2. The statement of retained earnings for the year ended December 31, Year 2 is on the next page. All dollars are in thousands. Ace Corporation Balance Sheets December 31, Year 1 and Year 2 Assets Year 1 Year 2 Cash $ 85 $ 127 Accounts receivable 245 253 Less: Allowance for doubtful accounts (9) (11) Prepaid insurance 15 9 Inventory 225 234 Long-term investment 65 42 Land 160 160 Buildings and equipment 250 300 Less: Accumulated depreciation (75) (100) Trademark 25 22 Total Assets $ 986 $1,036 Liabilities & Stockholders Equity Accounts payable $ 50 $ 36 Salaries payable 9 6 Deferred tax liability 15 18 Lease liability -- 75 Bonds Payable 275 125 Less: Discount (26) (24) Common Stock 250 280 Paid-In Capital in excess of par 75 105 Preferred Stock - 70 Retained Earnings 338 345 Total Liabilities & Stockholders Equity $ 986 $ 1,036 Ace Corporation Income Statement For the Year Ended December 31, Year 2 Net sales revenue $ 380 Investment revenue 12 Operating Expenses: Cost of Goods $ 150 Salaries expense 58 Depreciation expense 35 Trademark amortization 3 Bad debts expense 8 Insurance expense 20 Bond interest expense 45 319 Operating Income $ 73 Other Income (Expense): Loss on building fir $(27) Gain on sale of investments 4 (23) Pre-Tax Income from Continuing Operations $ 50 Less: Income Tax Expense: 25 Net Income $ 25 Additional Information: 1. Shareholders were paid cash dividends of $18 million. 2. A building that originally cost $40 million, and which was one-fourth depreciated, was destroyed by fire. Some undamaged parts were sold for $3 million. 3. Investment revenue includes Ace Corporation's $7 million share of the net income of Beta Corporation, an equity method investee. 4. $30 million par value of common stock was sold for $60 million, and $70 million of preferred stock was sold at par. 5. A long-term investment in bonds, originally purchased for $30 million, was sold for $34 million. 6. Pretax accounting income exceeded taxable income causing the deferred income tax liability to increase by $3 million. 7. The right to use a building was acquired with a seven-year lease agreement; present value of lease payments, $90 million. Annual lease payments of $15 million are paid at January 1st of each year starting in Year 2. 8. $150 million of bonds were retired at maturity. Required: Use the EXCEL worksheet template provided. There are three tabs- 1. Direct Method Statement of Cash Flows (SCF) 2. Spreadsheet for preparing the SCFs. This is where you show your work 3. Cash flows from Operating Activities CFOs Indirect Method A. In the tab labeled Direct Method SCFs, prepare a complete statement of cash flows for Ace Corporation using the direct method of reporting cash flows from operating activities for the year ended December 31, Year 2. Show your work in the second tab labeled Spreadsheet for SCFs. You can use either the spreadsheet method, t-account method, or a combination of both. Included are some t-accounts to help you. For both the direct and indirect method you will need to analyze the impact the Allowance for doubtful accounts has on accounts receivable and cash. (25 points) B. In the third tab, prepare the operating activities section only for the statement of cash flows for Ace Corporation using the indirect method for the year ended December 31, Year 2. (25 points) Please follow the Basic Formatting Guidelines for Excel Documents located in the Writing and Excel Assignments folder.