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Exercise 1. (10 Points).

The following transactions and events occurred during the year. Assuming that this company uses the indirect method to report cash provided by operating activities, indicate where each item would appear on its statement of cash flows by placing an x in the appropriate column.

Statement of Cash Flows (Indirect Method)

	Operating Activities	Investing Activities	Financing Activities	Noncash Investing & Financing
Paid cash for operating expenses
Issued common stock for land
Accounts receivable decreased in the year
Recorded depreciation expense
Income taxes payable increased during the year
Sold equipment for cash, yielding a gain
Paid cash for interest expense
Purchased land by for cash
Purchased long-term investment in bonds
Paid cash for retirement of note payable

Exercise 2. (20 Points).

Use the following income statement and information about changes in noncash current assets and liabilities to (1) prepare only the cash flows from operating activities section of the statement of cash flows using the indirect method and (2) compute the company's cash flow on total assets ratio for the year assuming that average total assets are $525,250.

Davey Company Income Statement For Year Ended December 31
Sales		$880,000
Cost of goods sold		487,000
Gross profit		$393,000
Operating expenses:
Salaries expense	$144,000
Rent expense	76,000
Depreciation expense	45,000
Amortization expense	22,000
Utilities expenses	12,000	299,000
Income from operations		$ 94,000
Loss on sale of equipment		14,000
Income before taxes		$ 80,000
Income tax expense		28,500
Net Income		$ 51,500

Changes in current asset and current liability accounts for the year that relate to operations follow.

Increase in accounts receivable	$ 32,000
Increase in accounts payable (all accounts
payable transactions are for inventory)	13,500
Decrease in prepaid expenses	9,200
Decrease in merchandise inventory	14,000
Decrease in long-term notes payable	20,000

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