Terry Co.
	Balance Sheet
	As of 12/31/Year 3
		Year 3	Year 2
	Assets
	Current Assets
	Cash	$148,815	$405,000
	A/R	$729,000	$688,500
	Allowance for Bad Debts	($40,500)	($202,500)
	Inventory	$723,000	$1,134,000
	Prepaid Insurance	$60,750	$121,500
	Prepaid Rent	$101,250	$81,000
	Total Current Assets	$1,722,315	$2,227,500
	Long-term Investments
	Loans to other businesses	$324,000	$324,000
	Expansion Fund	$38,814	$41,420
	Total Long-term Investments	$362,814	$365,420
	PPE
	Land	$891,000	$567,000
	Building	$648,000	$648,000
	ROU Asstet	3,564,665.00	-
	Equipment	$2,268,000	$1,053,000
	Accumulated Depreciation	($1,290,644)	($810,000)
	Total PPE	$6,081,021	$1,458,000
	Intangible Assets
	Patents, net	$121,500	$121,500
	Total Assets	$8,287,650	$4,172,420
	Liabilities and Stockholders' Equity
	Current Liabilities
	Accounts Payable	$592,537	$486,000
	Income Tax Payable	$211,714	$81,000
	Interest Payable	4,813.00
	Unearned Revenue	$140,300	$121,500
	Wages Payable	$89,100	$101,250
	Current Portion of Loan Payable	$40,500	$40,500
	Total Current Liabilities	$1,078,964	$830,250
	Long-term Debt
	Lease Liability	2,808,988	0
	Loan Payable	$445,500	$486,000
	Bond Payable, net	204,359
	Notes Payable	$1,134,000	$648,000
	Deferred taxes
	Total Long-term Debt	$4,592,847	$1,134,000
	Total Liabilities	$5,671,811	$1,964,250
	Stockholders' Equity
	Common stock	$320,000	$320,000
	($1 par, 320,000 issued, 312000 outstanding authorized, )
	Additional Paid-In capital	$273,720	$243,000
	Treasury stock	$(64,000.00)
	Retained Earnings	$2,099,915	$1,656,360
	Accumulated OCI	($13,796)	($11,190)
	Total Stockholders' Equity	$2,615,839	$2,208,170
	Total Liabilities and Stockholder's Equity	$8,287,650	$4,172,420
Terry Co.
Statement of Cash Flows
For Year Ended 12/31/Year 3
Cash Flow from Operations
Net Income		$643,555
Adjustments:
Change in A/R	($202,500)
Change in Inventory	$411,000
Change in Prepaid Insurance	$60,750
Change in Prepaid Rent	($20,250)
Depreciation & Amortization	$480,644
Amortization of Bond Discount	289.00
Stock option compensation	30720
deferred taxes	$-
Change in A/P	$106,537
Change in Income Tax Payable	$130,714
Change in Interest Payable
change in Interest Accrued	$59,891
Change in Unearned Revenue	$18,800
Change in Wages Payable	($12,150)	$1,064,445
Net Cash Flow from Operations		$1,708,000
Cash Flow from Investments
Purchase of Land	($324,000)
Purchase of Equipment	($1,231,000)
Net Cash Flow from Investments		($1,555,000)
Cash Flow from Financing
Repayment of Loans	($40,500)
Purchase of Treasury Stock	$64,000.00
Payment on Financing Lease	$(794,755.00)
Issuance of Notes Payable	$486,000
Issuance of Bonds Payable	204,070
payments of dividends	$(200,000.00)
Net Cash Flow from Financing		($281,185)
Net Increase (Decrease) in Cash		($256,185)
Cash, January 1, Year 3		$405,000
Cash, December 31, Year 3		$148,815

Terry Co.
Multi-Step Income Statement
For the Year Ended December 31, Year 3
Sales Revenue
Sales Revenue			$8,390,400
Less: Sales Discounts		$89,100
Sales Returns		$708,750	$797,850
Net Sales Revenue			$7,592,550
Cost of Goods Sold
Cost of Goods Sold			$4,692,326
Gross Profit			$2,900,224
Operating Activities
Selling Expenses
Advertising Expense	$151,875
Bad Debt Expense	$68,850
Miscellaneous Selling Expenses	$39,488
Sales Force Salaries Expense	$111,375
Selling Commissions Expense	$405,000
Shipping Expense	$66,319
Total Selling Expenses		$842,907
Administrative Expenses
Executive Salaries Expense	$385,095
Depreciation & Amortization Expense	$480,644
Insurance Expense	$29,363
Miscellaneous Admin. Expenses	$3,999
Office Supplies Expense	$31,388
R&D Expense	$121,500
Utilities Expense	$60,750
Total Administrative Expenses		$1,112,739	$1,955,646
Income from Operations			$944,578
Other Gains and Losses
Rent Revenue		$25,313
Interest Expense		($111,818)	($86,505)
Income from Continuing Operations before Taxes			$858,073
Income Tax Expense			($214,518)
Net Income			$643,555

Information: On December 30th, Terry's management completed negotiations with one of their suppliers to cover Terry's $28,000 account with shares of Terry's common stock. Rather than issue additional shares (and deal with the requirements of the SEC), Terry issued the supplier 7,200 shares of the treasury stock originally purchased on November 15, Year 3. As a relatively new public corporation, Terry still has several large investors that hold seats on its Board and have significant control over the company's decisions. These investors have expressed concern with the company's new Indirect Method Statement of Cash Flows and have asked the management team to switch to a Direct Method Statement with the required Schedule to Reconcile Net Income to Cash Provided from Operations. Because of the influence of these investors, Terry's management team has no choice but to agree with their request (although, they aren't thrilled with the extra work this change will cause). They have asked you to convert the current Statement of Cash Flows into a Direct Method version. The management team has decided to condense the line items used in the CFO section to include only seven (7) lines: Customers, Inventory, Selling Expenses, Administrative Expenses, Rent, Interest, and Taxes. Make the appropriate journal entries to correctly record the payment on A/P with treasury stock. Make the appropriate journal entry, if any, to correctly record the tax effect of the payment on account. Make any necessary changes to the Income Statement and Balance Sheet, then create a new Direct Method Statement of Cash Flows for Terry. Don't forget the reconciliation required in the footnotes! Information: On December 30th, Terry's management completed negotiations with one of their suppliers to cover Terry's $28,000 account with shares of Terry's common stock. Rather than issue additional shares (and deal with the requirements of the SEC), Terry issued the supplier 7,200 shares of the treasury stock originally purchased on November 15, Year 3. As a relatively new public corporation, Terry still has several large investors that hold seats on its Board and have significant control over the company's decisions. These investors have expressed concern with the company's new Indirect Method Statement of Cash Flows and have asked the management team to switch to a Direct Method Statement with the required Schedule to Reconcile Net Income to Cash Provided from Operations. Because of the influence of these investors, Terry's management team has no choice but to agree with their request (although, they aren't thrilled with the extra work this change will cause). They have asked you to convert the current Statement of Cash Flows into a Direct Method version. The management team has decided to condense the line items used in the CFO section to include only seven (7) lines: Customers, Inventory, Selling Expenses, Administrative Expenses, Rent, Interest, and Taxes. Make the appropriate journal entries to correctly record the payment on A/P with treasury stock. Make the appropriate journal entry, if any, to correctly record the tax effect of the payment on account. Make any necessary changes to the Income Statement and Balance Sheet, then create a new Direct Method Statement of Cash Flows for Terry. Don't forget the reconciliation required in the footnotes