Reference no: EM131997568

Question - Ellwood House, Inc. had the following condensed balance sheet at the end of 2012.

ELLWOOD HOUSE, INC. Balance Sheet December 31, 2012

Cash $ 10,000 Current liabilities $ 14,500

Current assets (non-cash) 34,000 Long-term notes payable 30,000

Investments 40,000 Bonds payable 32,000

Plant assets 57,500 Common stock 80,000

Land 38,500 Retained earnings 23,500

$180,000 $180,000

During 2013, the following occurred.

1. Ellwood House, Inc., sold part of its investment portfolio, which was classified as available-for-sale, for $15,500, resulting in a gain of $500 for the firm.

2. Dividends totaling $19,000 were paid to stockholders.

3. A parcel of land was purchased for $5,500.

4. $20,000 of common stock were issued at par.

5. $10,000 of bonds payable were retired at par.

6. Heavy equipment was purchased through the issuance of $32,000 of bonds.

7. Net income for 2013 was $42,000 after deducting depreciation of $13,550.

8. Both current assets (other than cash) and current liabilities remained at the same amount.

1. Prepare a statement of cash flows for 2013, using the indirect method. Assume that current assets (excluding cash) and current liabilities have remained the same on December 31, 2013. The cash balance on December 31, 2013 is $66,050.

2. Draft a one-page letter to Gerald Brauer, president of Ellwood House, Inc., briefly explaining the changes within each major cash flow category. Refer to your cash flow statement whenever necessary.