Problem NO: 3

Mortonson Company has not yet prepared a formal statement of cash flows for the 2014 fiscal year. Comparative balance sheets as of December 31, 2013 a

Mortonson Company has not yet prepared a formal statement of cash flows for the 2014 fiscal year. Comparative balance sheets as of December 31, 2013 and 2014, and a statement of income and retained earnings for the year ended December 31, 2014, are presented as follows.

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MORTONSON COMPANY

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STATEMENT OF INCOME AND RETAINED EARNINGS

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FOR THE YEAR ENDED DECEMBER 31, 2014

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($000 OMITTED)

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Sales revenue $3,800

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Expenses

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Cost of goods sold $1,200

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Salaries and benefi ts 725

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Heat, light, and power 75

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Depreciation 80

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Property taxes 19

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Patent amortization 25

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Miscellaneous expenses 10

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Interest 30 2,164

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MORTONSON COMPANY

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STATEMENT OF INCOME AND RETAINED EARNINGS

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FOR THE YEAR ENDED DECEMBER 31, 2014

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(CONTINUED)

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Income before income taxes 1,636

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Income taxes 818

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Net income 818

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Retained earnings—Jan. 1, 2014 310

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1,128

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Stock dividend declared and issued 600

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Retained earnings—Dec. 31, 2014 $ 528

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MORTONSON COMPANY

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COMPARATIVE BALANCE SHEETS

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AS OF DECEMBER 31

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($000 OMITTED)

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Assets 2014 2013

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Current assets

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Cash $ 333 $ 100

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U.S. Treasury notes (available-for-sale) 10 50

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Accounts receivable 780 500

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Inventory 720 560

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Total current assets 1,843 1,210

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Long-term assets

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Land 150 70

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Buildings and equipment 910 600

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Accumulated depreciation—buildings and equipment (200) (120)

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Patents (less amortization) 105 130

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Total long-term assets 965 680

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Total assets $2,808 $1,890

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Liabilities and Stockholders’ Equity

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Current liabilities

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Accounts payable $ 420 $ 330

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Income taxes payable 40 30

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Notes payable 320 320

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Total current liabilities 780 680

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Long-term notes payable—due 2016 200 200

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Total liabilities 980 880

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Stockholders’ equity

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Common stock 1,300 700

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Retained earnings 528 310

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Total stockholders’ equity 1,828 1,010

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Total liabilities and stockholders’ equity $2,808 $1,890

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Instructions

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

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