The credit manager at First National Bank has just received the income statement and

balance sheet for Magna Fax, Inc. for the year ended December 31,2015. (See Table 4.2.) The
bank requires the firm to report its earnings performance and financial position quarterly as a
condition of a loan agreement. The bank's credit manager must prepare two key financial
statements based on the information sent by Magna Fax, Inc. This will be passed on to the
commercial loan officer assigned to this account, so that he may review the financial condition of
the firm.
(a) Prepare a statement of retained earnings for the year ended December 31, 2015.
(b) Prepare a summary of cash inflows and cash outflows for the year ended December 31, 2015.
(c) Prepare a statement of cash flows for the year ended December 31, 2015, organized by cash
flow from operating activities, cash flow from investment activities, and cash flow from
financing activities

Answer
Calculate the change in the key balance sheet accounts between 2014 and 2015 and classify
each as a source (S), a use (U), or neither (N), and indicate which type of cash flow it is: an
operating cash flow (O), and investment cash flow (I) or a financing cash flow (F).