The income statement and unclassified statement of financial position for Pharoah, Inc. follow: PHAROAH, INC. Statement of Financial Position December 31 Assets 2018 2017 $48,500 115,500 41,200 Cash $98,800 Held for trading investments 129,000 Accounts receivable 71,500 Inventory 122,100 Prepaid expenses 19,000 Property, plant, and equipment 284,500 Accumulated depreciation (50,000) Total assets $674,900 Liabilities and Shareholders' Equity Accounts payable $99,500 Accrued liabilities 10,000 Bank loan payable 78,400 Common shares 240,000 Retained earnings 247,000 Total liabilities and shareholders' equity $674,900 94,400 28,200 254,000 (54,000) $527,800 $78,300 7,900 149,600 165,000 127,000 $527,800 $503,550 187,050 PHAROAH, INC. Income Statement Year Ended December 31, 2018 Sales Cost of goods sold Gross profit Operating expenses Income from operations Other revenues and expenses Unrealized gain on held for trading investments $13,500 Interest expense (4,750) Income before income tax 316,500 116,400 200,100 8,750 208,850 Income tax expense 42,000 Net income $166,850 Additional information: 1. Prepaid expenses and accrued liabilities relate to operating expenses. 2. An unrealized gain on held for trading investments of $13,500 was recorded. 3. New equipment costing $89,000 was purchased for $22,700 cash and a $66,300 long-term bank loan payable. 4. Old equipment having an original cost of $58,500 was sold for $1,900. 5. Accounts payable relate to merchandise creditors. 6. Some of the bank loan was repaid during the year. 7. A dividend was paid during the year. 8. Operating expenses include $46,600 of depreciation expense and a $6,000 loss on disposal of equipment. (a) Prepare the statement of cash flows, using the direct method. (Show amounts that decrease cash flow with either a - sign eg.-15,000 or in parenthesis e.g. (15,000).) PHAROAH, INC. Statement of Cash Flows-Direct Method Cash Payments 1 $ > 4 4 $ by Note X to the Statement of Cash Flows: During the year, the company purchased equipment costing $ paying $22,700 cash and issuing a $66,300 bank loan payable