The Sage Corp. prepared for 2005 and 2004, the following balance sheet data:

----------------------------------------------------------------------------------------2005 2004

Cash............................................................................ 87,375 63,750

available-for-sale securities (not cash equivalents)............17,250 105,000

accounts receivable........................................................90,000 86,250

merchandise inventory..................................................187,500 163,500

prepaid insurance............................................................1,125 1,500

Land, Buildings, and equipment.......................................1,378,875 1,087,500

Accumulated depreciation..............................................(558,750) (498,750)

Total........................................................................$1,203,375 $1,008,750

Accounts Payable..........................................................153,375 236,250

Salaries Payable.............................................................18,750 26,250

Notes payable-bank (current).........................................37,500 150,000

Bonds payable..............................................................375,000 0

Common stock.............................................................600,000 600,000

Retained earnings (deficit).............................................18,750 (3,750)

Total.......................................................................$1,203,375 $ 1,008,750

Addtional information:

(a) sold available-for-sale securities (not cash equivalents) costing $87,750 for $90,000

(b) Equipment costing $18750 with a book value of $3,750 was sold for $4,500.

(c) Issued 8% bonds payable at par, $375,000.

(d) Purchased new equipment for cash, $310,125.

(e) Paid cash dividends of $22,500 during the year.

(f) Net Income for 2005 was $45,000.

(g) Proceeds from the notes payable were issued for operating purposes.

Prepare a cash flow statement for Sage Corp. for 2005, using the indirect method.

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This is what I have so far.

Net Income Cash flow of operating Activity ----------45,000

Adjustments

Subtract: Accounts Receivable ---------(3,750)

Add: Merchendise Inventory --------------(24,000)

Add: Accumulated depreciation ---------60,000

Subtract: Prepaid Insurance --------------375

Add: Salaries Payable ---------------------(7,500)

Add: Accounts Payable -------------------(82,875)

Availeable-for-sale secuirities Gain ----(2,250)

Equipment sale gain ------------------------(750)

Net Cash from operating activities ------------------(15,750)

Cash flow from investment activities

Purchase Land, Building, and Equipment (310,125)

Availeable-for-sale secuirities -------------------87,750

Sale of equipemt --------------------------------------3,750

Net Cash in investing activities ---------------------------(218,625)

Cash flow from financial activities

Dividends -----------------------------(22,500)

Bonds Payable ---------------------375,000

Notes Payable ----------------------(112,500)

Net Cash from financial activities ----------------- 240,000

Net increase in Cash 23,625 (CORRECT ANSWER) 5,625 (MY ANSWER)

Cash Beginning --------63,750

Cash End -----------------87,375

What am I doing wrong? What confuses me is (b) equipment costing 18,750 with a book value of $3,750 was sold for $4,500. But I think I did it correctly.

(g) Proceeds from the notes payable were used for operating purposes. This also confused me. Since Notes payable went lower how could there be proceeds? Unless that loan was to pay off some of the operations, if so how would I write it?