A comparative balance sheet for Luther Corporation is presented below:

LUTHER CORPORATIONComparative Balance Sheet

2006 2005Assets

Cash $ 41,000$ 31,000

Accounts receivable (net) 80,000 60,000Prepaid insurance 22,000 17,000Land 22,000

40,000Equipment 70,000 60,000Accumulated depreciation (20,000) (13,000)

Total Assets $215,000 $195,000

Liabilities and Stockholders' EquityAccounts payable $ 11,000 $ 6,000Bonds payable 27,000 19,000Common stock 140,000 115,000Retained earnings 37,000 55,000

Total liabilities and stockholders' equity $215,000 $195,000

Additional information:

1. Net income for 2006 was $15,000.

2. A parcel of land was sold (for cash) at a gain of $9,000. This was the only land transaction during the year. (Hint: remember land does not depreciate!)

3. Equipment with a cost of $25,000 and accumulated depreciation of $11,000 was sold for $3,000 cash.

Instructions:A. Prepare a statement of cash flows for the year ended 2006,

using the indirect method.B. How would you evaluate Luther Corporation’s cashflow in

2006? Good, bad? Positive, negative? Why?

Mar 07 Page 1 of 6 PQN ACC201 Midterm

Cashflow from Operating ActivitiesNet Income 15,000 Accounts Receivable Increase (20,000) Prepaid Insurance Increase (5,000) Accounts Payable Increae 5,000 Gain on Sale of Lane (9,000) Loss on Sale of Equipment 11,000 Depreciation Expense 18,000 Total Cashflow from Operations 15,000

Cashflow from Investing ActivitiesSold Land 27,000 Sold Equipment 3,000 Bought Equipment (35,000) Total Cashflow from Investing Activities (5,000)

Cashflow from Financing ActivitiesIssued Bonds 8,000 Issued Common Stock 25,000 Paid Dividends (33,000) Total Cashflow from Financing Activities -

Total Cashflow 10,000

Retained Earnings Equipment 33,000 55,000 60,000 25,000 15,000 Net Income 35,000 Purchase of Equipment Dividends

37,000 70,000 Depreciation 11,000 13,000 18,000 Depreciation Expense 20,000 Gain/Loss on Sale = Sales Price – Book Value $9,000 = X - $18,000 $27,000 = X

Mar 07 Page 2 of 6 PQN ACC201 Midterm