Magna Fax, Inc. Income Statement For the Year Ended December 31, 2010 Sales revenue $150,000 Cost of goods sold 117,500 Gross Profits $32.500 Selling expense 4,500 General and administrative expense 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 2009 $21,000 39,000 27,000 Magna Fax, Inc. Balance Sheet For the Years Ended December 31, 2009 and 2010 2010 Assets Cash $24,000 Accounts receivable 45,000 Inventory 30,000 Gross fixed assets $42,000 $40,000 Acc. Depreciation 22,000 18,000 Net fixed assets 20,000 Total assets $119,000 Liabilities and Equity Accounts payable $25,000 Notes payable 50,000 Accruals 1,000 Long-term debts 10,000 Common stock at par 1,000 Paid-in capital in excess of par 4,000 Retained earnings 28,000 Total liabilities and equity $119,000 22.000 $109,000 $30,000 40,000 2,000 8,000 1,000 4,000 24,000 $109,000 The 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 Table 4.2) 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 condition of the firm. (a) Prepare a Statement of Retained Earnings for the year ended December 31, 2010. (b) Prepare a summary of cash inflows and cash outflows (tabla) for the year ended December 31, 2010. (c) Prepare a Statement of Cash Flows for the year ended December 31, 2010, organized by cash flow from operating activities, cash flow from investment activities, and cash flo