(APPENDIX 11A) PREPARING A STATEMENT OF CASH FLOWS—DIRECT METHOD Financial statements for Rowe Publishing Company are presented below.

Rowe Publishing Company Balance Sheets December 31, 2009 and 2008 ASSETS 2009 2008 Current assets:

Cash $ 85,000 $ 66,000 Accounts receivable 240,000 231,000 Inventory 190,000 170,000 Total current assets $515,000 $467,000 Property, plant, and equipment:

Building $ 400,000 $ 400,000 Equipment 155,000 130,000

$ 555,000 $ 530,000 Accumulated depreciation (375,000) (350,000)

Net property, plant, and equipment 180,000 180,000 Total assets $695,000 $647,000 LIABILITIES AND EQUITY 2009 2008 Current liabilities:

Accounts payable $ 133,000 $ 121,000 Salaries payable 15,000 11,000 Income taxes payable 10,000 17,000 Total current liabilities $158,000 $149,000 Long-term liabilities:

Notes payable $ 115,000 $ 150,000 Bonds payable 50,000 0 Total long-term liabilities 165,000 $150,000 Total liabilities $323,000 $299,000 Equity:

Common stock $ 300,000 $ 300,000 Retained earnings 72,000 48,000 Total equity 372,000 348,000 Total liabilities and equity $695,000 $647,000 Rowe Publishing Company Income Statement For the Year Ended December 31, 2009 Sales $1,051,000 Less: Cost of goods sold 578,000 Gross margin $ 473,000 Less operating expenses:

Salaries $351,000 Depreciation 25,000 376,000 Income from operations $ 97,000 Less: Interest expense 16,000 Income before taxes $ 81,000 Less: Income tax expense 22,000 Net income $ 59,000 Additional information:

a. No buildings nor equipment were sold during 2009. Equipment was purchased for $25,000 cash.

b. Notes payable in the amount of $35,000 were repaid during 2009.

c. Bonds payable of $50,000 were issued for cash during 2009.

d. Rowe Publishing declared and paid dividends of $35,000 during 2009.

Required:

Prepare a statement of cash flows for 2009, using the direct method to determine net cash flow from operating activities.

Exercise