Question 2. The comparative balance sheet as of December 31, this year and December 31, last year, as well as this years income statement of Slab, Inc. are shown below.

Additional information:

Several years ago, Slab invested in Squib Designs, Inc. The initial investment was 40% of the outstanding common stock of Squib. This percentage remained constant throughout the years. During the current year, Squib Designs reported net income of $37,500. In addition, Squib declared and paid dividends of $7,500. The short-term marketable securities were purchased on January 2nd of the current year at a cost of $120,000 and were classified as available-for-sale. Dividends of $13,000 were received in conjunction with these securities. The market value of the securities is $110,000 as of 12/31 of the current year. Bonds series A, with a $100,000 face value, were issued several years ago at a premium of $20,000. The bonds were retired on 12/31 this year, at a loss of $11,000. At the time of retirement, their net carrying amount was $116,000. During the year, Slab sold old equipment, with an acquisition cost of $30,000 and accumulated depreciation of $16,000 as of the date of the sale, for $14,000 in cash. The company issued $50,000 of series B bonds. The proceeds were used to purchase new equipment. A cash dividend of $20,000 was declared and paid this year. All stock issuances were for cash.

Prepare the cash flow statement for this year. Use the indirect approach.

Balance Sheets of Slab, Inc. Cash Short-term marketable securities Accounts receivable Inventory Prepaid expenses Plant and equipment (gross) Accumulated depreciation Investment in Squib Desi Total assets $72,000 110,000 45,000 80,000 10,000 300,000 (72,000) 122,000 667,000 $186,000 39,000 88,000 9,000 280,000 (70,000) 110,000 642,000 $62,000 3,000 117,000 Accounts payable Income tax payable Bonds payable (Series A) Bonds payable (Series B) Deferred income tax Common stock Retained earnings Accumulated other comprehensive income Total liabilities and equity $54,000 12,000 50,000 (2,000) 260,000 303,000 (10,000) 667,000 3,000 199,000 258,000 0 642,000 Income Statement of Slab, Inc. Sales Costs of goods sold Labor and other operating expenses Depreciation expense Interest expense Investment income Loss on bond retirement Income tax ex Net income this year $590,000 (380,000) (96,000) (18,000) (14,000) 28,000 (11,000) (34000) 65,000