Posted: May 1st, 2016

What is the earning capacity?

nterest 30 2,164
Income before income taxes 1,636
Income taxes 818
Net income 818
Retained earnings – January 1, 2012 310
1,128
Stock dividend declared and issued 600
Retained earnings – December 31, 2012 $528

MORTONSON COMPANY
Comparative Balance Sheet
December 31
($000 Omitted)
Assets 2012 2011
Current assets
Cash $333 $100
U.S. Treasury notes (Available-for-sale) 10 50
Accounts receivable 780 500
Inventory 720 560
Total current assets 1,843 1,210
Long-term assets
Land 150 70
Buildings and equipment 910 600
Accumulated depreciation (200) (120)
Patents (less amortization) 105 130
Total long-term assets 965 680
Total assets $2,808 $1,890

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable $420 $330
Income taxes payable 40 30
Notes payable 320 320
Total current liabilities 780 680
Long-term notes payable – due 2014 200 200
Total liabilities 980 880
Stockholders’ equity
Common stock outstanding 1,300 700
Retained earnings 528 310
Total stockholders’ equity 1,828 1,010
Total liabilities and stockholders’ equity $2,808 $1,890

Instructions:
Prepare a statement of cash flows using the direct method. Changes in accounts receivable and in accounts payable relate to sales and cost of sales. Do not prepare a reconciliation schedule.