1. Use the following financial statements and additional information to prepare a statement of cash flows for the year ended December 31, Year 2. Use the indirect method for the operating activities section.

You may prepare the statement manually or use a spreadsheet.

ABC 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
ABC 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 $85,000, 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.

Statement of Cash Flows