**Condensed Comparative Balance Sheets of Posner Company:** At December 31, Years 1 and 2, appear as follows: | **Accounts** | **Year 2** | **Year 1** | |:---------------:|:------------:|:--------------:| | **Cash** | $53,000 | $50,000 | | **Accounts receivable (net)**| $37,000 | $48,000 | | **Inventories** | $108,500 | $100,000 | | **Investments** | | $70,000 | | **Equipment** | $573,200 | $450,000 | | **Accumulated depreciation–equipment** | ($142,000) | ($176,000) | | **Total assets** | $629,700 | $542,000 | ### **Liabilities and Stockholders' Equity:** | **Accounts** | **Year 2** | **Year 1** | |:---------------:|:------------:|:--------------:| | **Accounts payable** | $62,500 | $43,800 | | **Bonds payable, due Year 2**| | $100,000 | | **Common stock, $10 par** | $335,000 | $285,000 | | **Paid-in capital in excess of par** | $70,000 | $55,000 | | **Retained earnings** | $162,200 | $58,200 | | **Total liabilities and stockholders' equity** | $629,700 | $542,000 | ### **Additional Information:** The income statement for the current year is as follows: - **Sales**: $625,700 **Explanation:** - **Assets**: Breakdown of current and fixed assets. Notice the increase in equipment from Year 1 ($450,000) to Year 2 ($573,200), and depreciation adjustments. - **Liabilities and Stockholders' Equity**: A shift in liabilities, particularly the payoff or adjustment of bonds payable from Year 1 to Year 2. - **Equity**: Increase in both common stock and retained earnings, reflecting potential growth or profitability advances. **Educational Content on Financial Reporting** --- **Income Statement Overview** - **Cost of Merchandise Sold**: $340,000 - **Gross Profit**: $285,700 **Operating Expenses** - **Depreciation Expense**: $26,000 - **Other Operating Expenses**: $68,000 - **Total Operating Expenses**: $94,000 - **Income from Operations**: $191,700 **Other Revenue and Expense** - **Gain on Sale of Investment**: $4,000 - **Interest Expense**: $(6,000) - **Net Other Revenue and Expense**: $(2,000) **Income Before Income Tax**: $189,700 **Income Tax Expense**: $60,700 **Net Income**: $129,000 **Additional Data for Current Year** 1. Fully depreciated equipment costing $60,000 was scrapped, with no salvage, and new equipment was purchased for $183,200. 2. Bonds payable for $100,000 were retired by payment at their face amount. 3. 5,000 shares of common stock were issued at $13 for cash. 4. Cash dividends declared and paid: $25,000. **Instruction for Preparation** Prepare a statement of cash flows for the year ended December 31, Year 2, using the indirect method. Use parentheses to indicate cash outflows, cash payments, decreases in cash, or any negative adjustments. **Example Structure:** - **Operating Activities** - **Investing Activities** - **Financing Activities** This information demonstrates how financial reporting elements such as gross profit, operating expenses, and net income are calculated and impacts like equipment purchase or retirement of bonds are recorded. Understanding these components is crucial for accurate financial management and decision-making. *Note: Ensure to follow accounting standards and guidelines when applying this example to real-world scenarios.* ---