Presented below are the balance sheets of Trout 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.

Trout 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 70

Preferred Stock - 105

Retained Earnings 338 345

Total Liabilities & Stockholders Equity $ 986 $ 1,036

Trout 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:

Shareholders were paid cash dividends of $18 million.

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.

Investment revenue includes Trout Corporation's $7 million share of the net income of Bass Corporation, an equity method investee.

$30 million par value of common stock was sold for $60 million, and $70 million of preferred stock was sold at par.

A long-term investment in bonds, originally purchased for $30 million, was sold for $34 million.

Pretax accounting income exceeded taxable income causing the deferred income tax liability to increase by $3 million.

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 1^st of each year starting in Year 2.

$150 million of bonds were retired at maturity.

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Direct Method Statement of Cash Flows (SCF)

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