"Liabilities and Stockholders’ EquityCurrent liabilities:Accounts payable ................................................................ $ 250,000 $ 440,000Notes payable ...................................................................... 400,000 400,000Accrued expenses................................................................70,000 50,000Total current liabilities ..................................................... 720,000 890,000Long-term liabilities:Bonds payable, 2008 ...........................................................70,000 120,000Total liabilities ................................................................. 790,000 1,010,000Stockholders’ equity:Preferred stock, $100 par value .......................................... 90,000 90,000Common stock, $1 par value .............................................. 120,000 120,000Capital paid in excess of par ............................................... 410,000 410,000Retained earnings ................................................................500,000600,000Total stockholders’ equity................................................ 1,120,000 1,220,000Total liabilities and stockholders’ equity .................................. $1,910,000 $2,230,000_______________________________________________________________________S2-36 2-27. Solution: Crosby CorporationStatement of Cash FlowsFor the Year Ended December 31, 2008Cash flows from operating activities:Net income (earnings after taxes) ........... $160,000Adjustments to determine cashflow from operating activities: ............ Add back depreciation .........................$150,000 Increase in accounts receivable ...........(50,000) Increase in inventory ...........................(20,000) Decrease in prepaid expenses ..............20,000 Increase in accounts payable ...............190,000 Decrease in accrued expenses .............(20,000) Total adjustments ............................. $270,000Net cash flows from operatingactivities.................................................. $430,000Cash flows from investing activities:Decrease in investments .........................10,000 Increase in plant and equipment .............(400,000) Net Cash flows from investing activities(390,000)Cash flows from financing activities:Increase in bonds payable .......................50,000 Preferred stock dividends paid ...............(10,000) Common stock dividends paid ...............(50,000) Net cash flows from financing ............... (10,000)Net increase (decrease) in cash flows ....... $ 30,000The student should observe that the increase in cash flows of $30,000equals the $30,000 change in the cash account on the balance sheet.This indicates the statement is correct.S2-37 28. Describe the general relationship between net income and net cash flows from operatingactivities for the firm.2-28. Solution:Cash flows from operating activities far exceed net income.This occurs primarily because we add back depreciation of$150,000 and accounts payable increase by $190,000. Thus, thereader of the cash flow statement gets important insights as tohow much cash flow was developed from daily operations.S2-38 29. Has the buildup in plant and equipment been financed in a satisfactory manner? Brieflydiscuss.2-29. Solution:The buildup in plant and equipment of $400,000 (gross) and$250,000 (net) has been financed, in part, by the large increasein accounts payable (190,000). This is not a very satisfactorysituation. Short-term sources of funds can always dry up, whilefixed asset needs are permanent in nature. This firm may wish toconsider more long-term financing, such as a mortgage, to goalong with profits, the increase in bonds payable, and the add- back of depreciation.S2-39 30. Compute the book value per common share for both 2007 and 2008 for the CrosbyCorporation.2-30. Solution:Book valueStockholders' equity - Preferred stock =Per shareCommon shares outstanding Book value$1,120,000 $90, - 000 Per share ( ) $1,030,000 == = $8.58 (2007)120,000 120,000 Book value$1,220,000 - $90,000 ( ) $1,130,000 Per share== = $9.42 (2008)120,000 120,000 S2-40 "