Homework answers / question archive / Data for Ernest Banks Company ERNEST BANKS COMPANY Comparative Balance Sheets December 31 Assets 2006 2005 Cash $ 23,000 $ 13,000 Accounts receivable 24,000 33,000 Merchandise inventory 20,000 27,000 Prepaid expenses 20,000 13,000 Land 40,000 40,000 Property, plant, and equipment 200,000 225,000 Less: Accumulated depreciation (50,000) (67,500) Total $277,000 $283,500 Liabilities and Stockholders' Equity Accounts payable $ 9,000 $ 18,500 Accrued expenses payable 9,500 7,500 Interest payable 1,000 1,500 Income taxes payable 3,000 2,000 Bonds payable 50,000 80,000 Common stock 123,000 105,000 Retained earnings 81,500 69,000 Total $277,000 $283,500 ERNEST BANKS COMPANY Income Statement For the Year Ended December 31, 2006 Revenues Sales $600,000 Gain on sale of plant assets 2,500 $602,500 Less: Expenses Cost of goods sold 500,000 Operating expenses (excluding depreciation) 60,000 Depreciation expense 7,500 Interest expense 5,000 Income tax expense 9,000 581,500 Net income $ 21,000 Additional information: 1

Data for Ernest Banks Company ERNEST BANKS COMPANY Comparative Balance Sheets December 31 Assets 2006 2005 Cash $ 23,000 $ 13,000 Accounts receivable 24,000 33,000 Merchandise inventory 20,000 27,000 Prepaid expenses 20,000 13,000 Land 40,000 40,000 Property, plant, and equipment 200,000 225,000 Less: Accumulated depreciation (50,000) (67,500) Total $277,000 $283,500 Liabilities and Stockholders' Equity Accounts payable $ 9,000 $ 18,500 Accrued expenses payable 9,500 7,500 Interest payable 1,000 1,500 Income taxes payable 3,000 2,000 Bonds payable 50,000 80,000 Common stock 123,000 105,000 Retained earnings 81,500 69,000 Total $277,000 $283,500 ERNEST BANKS COMPANY Income Statement For the Year Ended December 31, 2006 Revenues Sales $600,000 Gain on sale of plant assets 2,500 $602,500 Less: Expenses Cost of goods sold 500,000 Operating expenses (excluding depreciation) 60,000 Depreciation expense 7,500 Interest expense 5,000 Income tax expense 9,000 581,500 Net income $ 21,000 Additional information: 1

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Data for Ernest Banks Company

ERNEST BANKS COMPANY
Comparative Balance Sheets
December 31
Assets 2006 2005
Cash $ 23,000 $ 13,000
Accounts receivable 24,000 33,000
Merchandise inventory 20,000 27,000
Prepaid expenses 20,000 13,000
Land 40,000 40,000
Property, plant, and equipment 200,000 225,000
Less: Accumulated depreciation (50,000) (67,500)
Total $277,000 $283,500
Liabilities and Stockholders' Equity
Accounts payable $ 9,000 $ 18,500
Accrued expenses payable 9,500 7,500
Interest payable 1,000 1,500
Income taxes payable 3,000 2,000
Bonds payable 50,000 80,000
Common stock 123,000 105,000
Retained earnings 81,500 69,000
Total $277,000 $283,500

ERNEST BANKS COMPANY
Income Statement
For the Year Ended December 31, 2006
Revenues
Sales $600,000
Gain on sale of plant assets 2,500 $602,500
Less: Expenses
Cost of goods sold 500,000
Operating expenses (excluding
depreciation) 60,000
Depreciation expense 7,500
Interest expense 5,000
Income tax expense 9,000 581,500
Net income $ 21,000
Additional information:
1. Plant assets were sold at a sales price of $62,500.
2. Additional equipment was purchased at a cost of $60,000.
3. Dividends of $8,500 were paid.
4. All sales and purchases were on account.
5. Bonds were redeemed at face value.
6. Additional shares of stock were issued for cash.

Further analysis reveals the following.
1. Accounts payable relates to merchandise creditors.
2. All operating expenses, except depreciation expense, were paid in cash.
Instructions
Prepare a statement of cash flows for Ernest Banks Company for the year ended December 31, 2006, using the direct method.