This problem is a picture so I cannot change it but a small change needs to be made to the Income Statement. On the 4^th last line, the Gain on Sale of $2 is not entered. This increases the Income before Taxes to $1,871. With Income Taxes remaining at $920, this gives a bottom line of Net Income = $951. You need to use the figures given in this note in working this problem, not the figures given in the Income Statement.

Additional Information

1. In Year 1, Anderson sold machinery bought at $36, for $18, resulting in a $2 gain on the income statement.

2. SG&A expense includes $50 of interest expense, and amortization expense of $30.

3. Cost of goods sold includes depreciation of $260.

4. Income tax expense includes deferred tax liability of $20.

a. Prepare the Cash Flows from Operations section using the Direct Method.

b. Prepare a Statement of Cash Flows using the Indirect Method.

Balance Sheet Assets Cash Receivables Inventories Total current assets Fixed assets Accumulated depreciation Investment in afliate Goodwill Total assets Liabilities and Equity Accounts payable Bonds payable Deferred income taxes Capital stock Additional paid-in capital Retained earnings Total liabilities and equity Income Statement Sales Cost of goods sold Gross prot SG&A Operating income Year 0 $ 240 360 750 1,350 4,500 (1,500) 1,000 1,010 ,, ,1 G\\ G\\ O Equity in earnings of afliate (no dividends received) Gain on sale of xed assets Income before taxes Income taxes Net income $ 590 700 260 3,200 1,300 2.301 8 351 Year 1 $19,950 11,101 8,849 7,030 1,819 50 $ 1,869 920 94 I: Change $ (120) 90 303 273 1,938 (240) 50 (301 1 991 $ 230 400 20 800 400 141 $1,991