P5-2 Preparing the Statement of Cash Flows (Indirect Method) LO5-1, 5-2, 5-3, 5-5 , 5-7

Selected financial information for Frank Corporation is presented below.

Selected 2020 transactions are as follows:

1. Purchased investment securities for $7,000 cash.
2. Borrowed $19,000 on a two-year, 8 percent interest-bearing note.
3. During 2020, sold machinery for its carrying amount; received $14,000 in cash.
4. Purchased machinery for $54,000; paid $11,000 in cash and signed a four-year note payable to the dealer for $43,000.
5. Declared and paid a cash dividend of $12,000 on December 31, 2020.

Selected account balances at December 31, 2019 and 2020 are as follows:

	December 31
	2020			2019
Cash	$	90,000		$	23,000
Accounts receivable		19,000			13,000
Inventory		54,000			64,000
Accounts payable		9,000			14,000
Accrued wages payable		1,800			3,000
Income taxes payable		7,000			4,000

One-fourth of the sales and one-third of the purchases were made on credit.

FRANK CORPORATION
Statement of Earnings
For the Year Ended December 31, 2020
Sales revenue				$	440,000
Cost of sales					288,000
Gross profit					152,000
Expenses
Salaries and wages	$	53,000
Depreciation		11,200
Rent (no accruals)		7,800
Interest (no accruals)		14,200
Income tax		13,800
Total expenses					100,000
Net earnings				$	52,000

Required:

1. Prepare a statement of cash flows for the year ended December 31, 2020 by using the indirect method. (Negative answers should be indicated by a minus sign.)

2. Compute the quality of earnings ratio and the capital expenditures ratio. (Enter your answers in numbers and not in percentages. Round the final answers to 2 decimal places.)