The following income statement and balance sheet information are available for two
firms, Firm A and Firm B.
(a) Calculate the amount of dividends Firm A and Firm B paid using the information given.
(b) Prepare a statement of cash flows for each firm using the indirect method.
(c) Analyze the difference in the two firms.
Income Statement
For Year Ended December 31, 2009
Firm A Firm B
Sales $1,000,000 $1,000,000
Cost of goods sold 700,000 700,000
Gross profit 300,000 300,000
Other expenses
Selling and administrative 120,000 115,000
Depreciation 10,000 30,000
Interest expense 20,000 5,000
Earnings before taxes 150,000 150,000
Income tax expense 75,000 75,000
Net Income $ 75,000 $ 75,000
Changes in Balance Sheet Accounts
December 31, 2008, to December 31, 2009
Firm A Firm B
Cash and cash equivalents $ 0 $ 10,000
Accounts receivable 40,000 5,000
Inventory 40,000 10,000
Property, plant, and equipment 20,000 70,000
Less accumulated depreciation (10,000) (30,000)
Total Assets $90,000 $45,000
Accounts payable $20,000 $ 5,000
Notes payable (current) 17,000 2,000
Long-term debt 20,000 10,000
Deferred taxes (noncurrent) 3,000 18,000
Capital, Stock - -
Retained earnings 70,000 40,000
Total Liabilities and Equity $90,000 $45,000
Understanding Financial Statements,Eighth Edition, by Lyn M. Fraser and Aileen Ormiston. Published by Prentice Hall.