Problem 7 (30 points) Complete a Statement of Cash Flows using the direct method. Use the attached comparative balance sheet, income statement, and the following notations: A. Sold equipment for $25,000 cash. B. Purchased equipment costing $100,000 with $25,000 cash and $75,000 trade in of old equipment. C. Borrowed $4,000 cash by signing a note payable. D. Paid $41,000 cash to reduce long-term notes payable. E. Issued 1,000 shares of common stock at $10 per share. F. Declared and paid $7,000 cash dividends.ABC Corp. Comparative Balance Sheet December 31, 2003 2003 2002 Assets Current Assets Cash $648,500 $69,000 Accounts Receivable $75,000 $82,500 Merchandise Inventory $235,000 $255,000 Prepaid Expenses $14,500 $16,000 Plant Assets Equipment $252,000 $200,000 Accumulated Depreciation (Equipment) ($100,000) ($91,000) Total Assets $1, 125,000 $531,500 Liabilities and Equity Current Liabilities Accounts Payable $18,500 $95,500 Long-Term Liabilities Notes Payable $88,000 $75,000 Equity Common Stock, $10 Par $210,000 $200,000 Contributed Capital $25,000 $0 Retained Earnings $783,500 $161,000 Total Liabilities and Equity $1, 125,000 $531,500ABC Corp. Income Statement For the Year Ended December 31, 2003 Sales $1,560,000 Cost of Goods Sold ($525,000) Gross Profit $1,035,000 Operating Expenses Depreciation Expense $42,000 Other Expenses $350,000 Total operating expenses ($392,000) Other gains (losses) Loss on Sale of Equipment ($2,500) Income before taxes $640,500 Income taxes ($23,500) Net Income $617,000ABC Corp. Statement of Cash Flows (Direct Method) For the Year Ended December 31, 2003 Cash Flows from Operating Activities: Cash received from customers Cash paid for merchandise Cash paid for other expenses Cash paid for income taxes Net cash provided by operating activities Cash flows from investing activities: Cash received from sale of equipment Cash paid for equipment Net cash used in investing activities Cash flows from financing activities: Cash borrowed on short-term note Cash paid on long-term note Cash received from issuing stock Cash paid for dividends Net cash used for financing activities Net increase in cash Cash beginning balance 2003 Cash ending balance 2003Statement of Cash Flows Direct Method Cash received from customers: Cash paid for merchandise= Income Statement /_j% Sales COGS Cash paid for other operating expenses= Other Expenses Cash paid for interest = Cash paid for taxes= Interest Expense Tax Expense Comparitive Balance Sheet \"E + Decrease in MR - Increase in A/R + Increase in Merchandise + Decrease in A/P - Decrease in Merchandise - Increase in A/P + Increase in Prepaid + Decrease in Accruals - Decrease in Prepaid - Increase in Accruals + Decrease In Interest Payable - Increase in Interest Payable + Decrease in Taxes Payable - Increase iniTaxes Payable