Income Statement and Statement of Cash Flows Indirect Method

The table below shows the account balances of Novations, Inc., at the beginning and end of the companys accounting period.

Debits	Dec. 31, 2015	Jan. 1, 2015
Cash and Cash Equivalents	$176,400	$58,000
Accounts Receivable	32,000	26,600
Inventory	21,000	25,400
Prepaid Insurance	5,600	4,000
Long-Term Investments (at cost)	6,000	16,800
Equipment	80,000	66,000
Treasury Stock (at cost)	10,000	20,000
Cost of Goods Sold	368,000
Operating Expenses	185,000
Income Tax Expense	37,600
Loss on Sale of Equipment	1,000
Total debits	$922,600	$216,800
Credits	Dec. 31, 2015	Jan. 1, 2015
Accumulated Depreciation Equipment	$19,000	$18,000
Accounts Payable	7,000	11,200
Interest Payable	1,000	2,000
Income Taxes Payable	12,000	8,000
Notes Payable Long-Term	16,000	24,000
Common Stock	110,000	100,000
Paid-In Capital in Excess of Par	32,000	30,000
Retained Earnings	19,600*	23,600
Sales	704,000
Gain on Sale of Long-Term Investments	2,000
Total credits	$922,600	$216,800

*Preclosing balance.

The following additional information is available:

(a) All purchases and sales were on account.

(b) Equipment costing $10,000 was sold for $3,000; a loss of $1,000 was recognized on the sale.

(c) Among other items, the operating expenses included depreciation expense of $7,000; interest expense of $2,800; and insurance expense of $2,400.

(d) Equipment was purchased during the year by issuing common stock and by paying the balance ($12,000) in cash.

(e) Treasury stock was sold for $4,000 less than it cost; the decrease in owners equity was recorded by reducing Retained Earnings. No dividends were paid during the year.

Instructions:

1. Prepare an income statement for Novations, Inc., for the year ended December 31, 2015.

2. Prepare a statement of cash flows for the year ended December 31, 2015, using the indirect method.