[gsnead]

PROBLEM #1 The balance sheet for December 31, 2008, December 31, 2007, and the income statement for the year ended December 31, 2008, for Rocket Company follows.

Rocket Company
Balance Sheet
December 31, 2008 and 2007

2008 2007
Assets
Cash $ 25,000 $20,000
Accounts receivable, net 60,000 70,000
Inventory 80,000 100,000
Land 50,000 50,000
Building and equipment 130,000* 115,000
Accumulated depreciation (85,000) (70,000)
Total assets $ 260,000 $285,000

Liabilities and Stockholders' Equity
Accounts payable $ 30,000 $ 35,000
Income taxes payable 4,000 3,000
Wages payable 5,000 3,000
Current notes payable 50,000** 60,000
Common stock 110,000*** 100,000
Retained earnings 61,000 84,000
Total liabilities and stockholders' equity $260,000 $285,000

* During 2008 cash payments for building and equipment $15,000.
** During 2008 cash paid for retirement of notes payable $10,000.
*** During 2008 cash received from issuance of stock.



Rocket Company
Income Statement
For the Year Ended December 31, 2008

Sales $500,000
Less expenses:
Cost of goods sold $330,000
Selling and administrative expenses 90,000
(includes depreciation of $15,000)
Interest expense 5,000
Total expenses 425,000
Income before taxes $ 75,000
Income tax expense 30,000
Net income $ 45,000
Note: Cash dividends of $68,000 were paid during 2008.
Required:
a. Prepare the statement of cash flows for 2008. (Present cash flows from operations using the indirect approach.)
b. Compute the ratio operating cash flow/current maturities of long-term debt and current notes payable.
c. Comment on the statement of cash flows and the ratio computed in (b).

[JudyKayTee]

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