Question #3 (26 marks) Prepare CFO under the DIRECT method using the data set of problem (a) P4-48 (12 marks) and (b) P4-52 (14 marks). Classify interest income as CFO

ARCTIC COMPANY Income Statement For Year Ended December 31, 2013 $728,000 Sales Cost of goods sold Wages expense. Advertising expense Depreciation expense Interest expense Gain on sale of land. Net loss $534,000 190,000 31,000 22,000 18,000 (25,000) 770,000 $ (42,000) ARCTIC COMPANY Balance Sheets Dec. 31, 2013 Dec. 31, 2012 Assets Cash.... Accounts receivable Inventory Prepaid advertising. Plant assets.. Accumulated depreciation Total assets... $ 49,000 42,000 107,000 10,000 360,000 (78,000) $490,000 $ 28,000 50,000 113,000 13,000 222,000 (56,000) $370,000 $ 31,000 Liabilities and Stockholders' Equity Accounts payable .. Interest payable. Bonds payable.. Share capital Retained earnings. Treasury stock. ... Total liabilities and equity. $ 17,000 6,000 200,000 245,000 52,000 (30,000) $490,000 245,000 94,000 $370,000 0 0 RAINBOW COMPANY Income Statement For Year Ended December 31, 2013 $750,000 15,000 765,000 Sales Dividend income Total revenue... Cost of goods sold .. Wages and other operating expenses Depreciation expense.. Patent amortisation expense Interest expense ... Income tax expense Loss on sale of equipment. Gain on sale of investments Net income... $440,000 130,000 39,000 7,000 13,000 44,000 5,000 (3,000) 675,000 $ 90,000 RAINBOW COMPANY Balance Sheets Dec. 31, 2013 Dec. 31, 2012 Assets Cash and cash equivalents.. Accounts receivable Inventory Prepaid expenses -Long-term investments. $ 19,000 40,000 103,000 10,000 Land... 190,000 445,000 (91,000) 179,000 (42,000) 50,000 $903,000 $ 25,000 30,000 77,000 6,000 57,000 100,000 350,000 (75,000) 225,000 (46,000) 32,000 $781,000 - Buildings Accumulated depreciation-Buildings. Equipment.. Accumulated depreciation-Equipment Patents... Total assets. Liabilities and Stockholders' Equity Accounts payable Interest payable.. Income tax payable. Bonds payable.. Preferred stock ($100 par value). Share capital ($5 par value) Contributed surplus Retained earnings... Total liabilities and equity $ 20,000 6,000 8,000 155,000 100,000 379,000 133,000 102,000 $903,000 $ 16,000 5,000 10,000 125,000 75,000 364,000 124,000 62,000 $781,000