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The following income statement and balance sheet information are available for two firms, Firm A and Firm B. Firm A paid $5,000 in dividends. Firm B...

The following income statement and balance sheet information are available for two firms, Firm A and Firm B. Firm A paid $5,000 in dividends. Firm B paid $35,000 in dividends during 20X9.
a. Prepare a statement of cash flows for each firm using the indirect method.
b. Analyze the difference in the two firms.

Income Statement for year ended December 31, 20X9
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, 20X8, to December 31, 20X9

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
Stockholder's equity +70,000 +40,000

Total Liabilities and Equity +90,000 +45,000
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Solution:A) Prepration of cash flows for each firm using indirect method:Firm A Firm B Difference A. Cash flow from operating activities:Net income
Add: Depreciation expense
Less: Increase in...

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