Comprehensive problem

The following balance sheet is presented for J.D.F. Company as of December 31, 2011.

J.D.F. Company Balance Sheet December 31, 2011
ASSETS	Â	Â
Cash	Â	$       170,000
Accounts receivable	Â	188,000
Merchandise inventory	Â	200,000
Prepaid insurance	Â	74000
Supplies inventory	Â	40,000
Long-term investments	Â	160,000
Equipment	$480,000	Â
Less: Accumulated depreciation	98,000	382,000
Machinery	$950,000	Â
Less: Accumulated depreciation	230,000	720,000
Patent	Â	75,000
Total assets	Â	$2,009,000
LIABILITIES AND SHAREHOLDERS" EQUITY	Â	Â
Accounts payable	Â	$220,000
Wages payable	Â	73000
Mortgage payable	Â	300000
Bonds payable	Â	500,000
Contributed capital	Â	500,000
Retained earnings	Â	416,000
Total liabilities and shareholder? equity	Â	$2009,000

During 2012, J.D.F. entered into the following transactions.

1. Made credit sales of $1,350,000 and cash sales of $350,000. The cost of the inventory sold was $700,000.
2. Purchased $820,000 of merchandise inventory on account.
3. Made cash payments of $400,000 to employees for salaries. This amount includes the wages due employees as of December 31, 2011.
4. Purchased $110,000 of supplies inventory by issuing a six-month note that matures on March 12, 2013.
5. Collected $850,000 from customers in payment of open accounts receivable.
6. Paid suppliers $870,000 for payment of open accounts payable.
7. Sold a long-term investment for $37,000. The investment had been purchased for $30,000.
8. Paid $148,000 in cash for miscellaneous operating expenses.
9. Issued additional common stock for $120,000 cash.
10. On September 30, 2012, a customer gave the company a note due on May 1, 2013, in payment of a $72,000 account receivable.
11. The company declared and paid a cash dividend of $50,000.
12. The company purchased stock in Microsoft as a long-term investment for $50,000.

J.D.F. used the following information to prepare adjusting journal entries on December 31, 2012.

(a) Forty percent of the prepaid insurance on January 1 was still in effect as of December 31, 2012.

(b) A physical count of the supplies inventory indicated that the company had $40,000 on hand as of December 31, 2012.

(c) A review of the company"s advertising campaign indicates that of the expenditures made during 2012 for miscellaneous operating expenses, $25,000 applies to promotions to be undertaken during 2013.

(d) The company is charged at a rate of $3,500 per month for certain operating expenses. It paid $36,000 for these expenses during the year.

(e) The company owes employees $43,000 for wages as of December 31, 2012.

(f) The $72,000 note receivable accepted in payment of an account receivable (see [10] above) specifies an annual interest rate of 9 percent.

(g) Equipment has an estimated useful life of ten years, and machinery has an estimated useful life of twenty years. The patent originally cost $125,000 and had an estimated useful life of ten years. The company uses the straight-line method to depreciate and amortize all property, plant, equipment, and intangibles.

(h) The note issued by the company (see [4] above) has a stated rate of 10 percent and was issued on September 12, 2012.

REQUIRED:

a. Prepare an income statement, a statement of shareholders" equity, a balance sheet, and a statement of cash flows using the direct form of presentation.

b. Prepare the operating section of the statement of cash flows under the indirect method.