1. For the year ended December 31, 2005
Exercise 1
E The income statement of Vince Gill Company is shown below :
Vince Gill Company
Income Statement
For the year ended December 31, 2005
Sales $ 6,900,000
Cost of goods sold
Beginning inventory $ 1,900,000
Purchases $ 4,400,000
Goods available for sale $ 6,300,000
Ending inventory $ 1,600, $ 4,700,000
Gross profit $ 2,200,000
Operating expenses
Selling expenses $ 450,000
Administrative expenses $ 700,000 $ 1,150,000
Net Income $ 1,050,000
Additional information :
Accounts receivable decreased $ 360,000 during the year
Prepaid expenses increased $ 170,000 during the year
Accounts payable to suppliers of merchandise decreased $ 275,000 during the year
Accrued expenses payable decreased $ 100,000 during the year
Administrative expenses include depreciation expense of $ 60,000
Instructions : Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2005 for Vince Gill Company, using the indirect method

2. Partial Statement of Cash Flows For the Year Ended December 31, 2005
Answer of Exercise 1
Vince Gill Company 
Partial Statement of Cash Flows 
For the Year Ended December 31, 2005 
Cash flows from operating activities 
Net income $ 1,050,000 
Adjustments to reconcile net income to net cash
provided by operating activities: 
Depreciation expense $ 60,000 
Decrease in accounts receivable $ 360,000 
Decrease in inventory $ 300,000 
Increase in prepaid expenses $ (170,000)
Decrease in accounts payable $ (275,000)
Decrease in accrued expenses payable $ (100,000) $ ,000 
Net cash provided by operating activities $ 1,225,000 

3. Exercise 2
P Mardi Gras Company has not yet prepared a formal statement of cash flows for the 2005 fiscal year. Comparative balance sheets as of December 31, 2004 and 2005, and a statement of income and retained earnings for the year ended December 31, 2005, are presented below :
Mardi Gras Company
Statement of Income and Retained Earnings
Year ended December 31, 2005 ($ 000 omitted)
Sales $ 3,800
Expenses : Cost of goods sold $ 1,200
Salaries and benefits $
Heat, light and power $
Depreciation $
Property taxes $
Patent amortization $
Miscellaneous expenses $
Interest $ _ $ 2,164
Income before income taxes $ 1,636
Income taxes $
Net Income $
Retained earnings Jan 1, $
$ 1,128
Stock dividend declared and issued $
Retained earnings Dec 31, $

4. Comparative Balance Sheets
Exercise 2
Mardi Gras Company
Comparative Balance Sheets
December 31 ($ 000 omitted)
Assets
Current Assets : Cash $ $
US Treasury notes (available for sale)
Accounts Receivable
Inventory _ _
Total Current Assets $ 1, $ 1,210
Long Term Assets : Land $ $
Buildings and equipment
Accumulated depreciation (200) (120)
Patents (less amortization) _ _
Total long term assets $ $
Total Assets $ 2, $ 1,890
Liabilities and Stockholders Equity
Current Liabilities : Account Payable $ $
Income taxes payable
Notes payable _ _
Total current liabilities $ $
Long term note payable due $ $
Total liabilities $ $
Stockholders Equity : Common Stock $ 1, $
Retained earnings _ _
Total Liabilities and Stockholders Equity $ 2, $ 1,890
Instructions : Prepare a statement of cash flows using the direct method. Changes in A/R and A/P relate to sales and cost of goods sold. Do not prepare a reconciliation schedule.

5. Statement Of Cash Flows For the Year Ended December 31, 2005
Answer of Exercise 2
Mardi Gras Company
Statement Of Cash Flows
For the Year Ended December 31, 2005
Cash flows from operating activities :
Cash receipts from customers $ 3,560,000 (a)
Payments for merchandise $ 1,280,000 (b)
Salaries and benefits $ ,000
Heat, light, and power $ ,000
Property taxes $ ,000
Interest $ ,000
Miscellaneous $ ,000
Income taxes $ , $ 2,937,000 (c)
Net cash provided by operating activities $ ,000
Cash flows from investing activities :
Sale of available-for-sale investments $ ,000
Purchase of buildings and equipment $ (310,000)
Purchase of land $ (80,000)
Net cash used by investing activities $ (340,000)
Increase in cash $ ,000
Cash, January 1, $ ,000
Cash, December 31, $ ,000

6. Answer of Exercise 2 Sales $ 3,800,000
Ending accounts receivable $ (740,000)
$ 3,060,000
Beginning accounts receivable $ ,000
Cash receipts (collections from customers) $ 3,560,000
Cost of goods sold $ 1,200,000
Ending inventory $ ,000
Goods available for sale $ 1,920,000
Beginning inventory $ (560,000)
Purchases $ 1,360,000
Ending accounts payable $ (420,000) $ ,000
Beginning accounts payable $ ,000
Cash purchases (payments for merchandise) $ 1,280,000
Income taxes $ 818,000
Ending taxes payables $ (40,000)
$ 778,000
Beginning taxes payable $ ,000
Income taxes (cash) $ 798,000