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	280,600	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.

	Requirement #1
	Derby Company
	Statement of Cash Flows (Direct Method)
	For Year Ended December 31, Year 2
	Requirement #2
(a)
(b)
(c)
(d)
(e)