Solution 2-28 a): Crosby Corporation Statement of Cash Flows For the Year Ended December 31, 20X2 Cash flows from operating activities: Net income (earnings after taxes) Adjustments to determine cash flow from operating activities: Add back depreciation Increase in accounts receivable Increase in inventory Decrease in prepaid expenses Increase in accounts payable Decrease in accrued expenses Total adjustments Net cash flows from operating activities Cash flows from investing activities: Decrease in investments Increase in plant and equipment Net cash flows from investing activities Cash flows from financing activities: Increase in bonds payable Preferred stock dividends paid Common stock dividends paid Net cash flows from financing Net increase (decrease) in cash flows $150,000 (50,000) (20,000) 20,000 190,000 (20,000) 10,000 (400,000) 50,000 (10,000) (50,000) $160,000 $270,000 $430,000 (390,000) (10,000) $ 30,000 The student should observe that the increase in cash flows of $30,000 eq

This indicates the statement is correct. Solution 2-28 b): Cash flows from operating activities far exceed net income. This occurs primarily because we add back depreciation of $319,000 and accounts payable increase by $248,000. Thus, the reader of the cash flow statement gets important insights as to how much cash flow was developed from daily operations. Solution 2-28 c): The buildup in plant and equipment of $690,000 (gross) and $371,000 (net) has been financed, in part, by the large increase in accounts payable (248,000). This is not a very satisfactory situation. Short-term sources of funds can always dry up, while fixed asset needs are permanent in nature. This firm may wish to consider more long-term financing, such as a mortgage, to go along with profits, the increase in bonds payable, and the add-back of depreciation. Solution 2-28 d): Book value per share Book value per share (20X1) Book value per share (20X2)

Solution 2-28 e):