Use the following financial statements and additional information to (1) prepare a complete statement of cash flows for the year ended December 31, Year 2. The cash provided or used by operating activities should be reported using the direct method, and (2) compute the company's cash flow on total assets ratio for Year 2.

Derby Company Balance Sheets At December 31

Year 2 Year 1

Assets: Cash 85,600 65,200

Accounts receivable, net 72,850 56,750

Merchandise inventory 157,750 144,850

Prepaid expenses 6,080 12,680

Equipment 28,600 245,600

Accumulated depreciation-Equipment (80,600) (97,600)

Total assets 522,280 427,480

Liabilities:

Accounts payable 52,850 45,450

Income taxes payable 15,240 12,240

Notes payable (long term) 59,200 79,200

Total liabilities 127,290 136,890

Equity:

Common stock 200,000 150,000

Paid-in capital in excess of par 53,000 40,000

Retained earnings 141,990 100,590

Total equity 394,990 290,590

Total liabilities and equity 522,280 427,480

Derby Company Income Statement For Year Ended December 31, Year 2

Sales 488,000

Cost of goods sold 212,540

Depreciation expense 43,000

Other operating expenses 106,260

Interest expense 6,400 368,200)

Other gains (losses): Gain on sale of equipment 4,700

Income before taxes 124,500

Income taxes expense 41,100

Net income 83,400

Additional Information

a. A $20,000 note payable is retired at its carrying value in exchange for cash.

b. The only changes affecting retained earnings are net income and cash dividends paid.

c. New equipment is acquired for $120,000 cash.

d. Received cash for the sale of equipment that had cost $25,000, yielding a gain of $4,700.

e. Prepaid expenses relate to Other Expenses on the income statement.

f. All purchases and sales of merchandise inventory are on credit.