Shallow Waters Company was started several years ago by two diving instructors.

Question

Shallow Waters Company was started several years ago by two diving instructors. The company's comparative balance sheets and income statement are presented below, along with additional information.

Additional Data:

a. Prepaid expenses relate to rent paid in advance.

b. Other expenses were paid in cash.

c. Purchased equipment for $400 cash at the end of the prior year to be used starting in current year.

d. An owner contributed capital by paying $600 cash in exchange for the company's stock.

Required:

Prepare the statement of cash flows for the year ended December 31, current year, using the indirect method. (List cash outflows as negative amounts.)

Current Year Prior Year Balance Sheet at December 31 Cash Accounts receivable Prepaid expenses Equipment $ 3,900 900 110 400 $ 5,310 $ 4,200 600 150 $ 4,950 $ 1,400 1,400 2,150 $ 4,950 Wages payable Contributed capital Retained earnings $ 960 2,000 2,350 $ 5,310 Income Statement for Current Year Lessons revenue Wages expense Other expenses Net income $39,450 35,000 4.250 $ 200

Explanation / Answer

SHALLOW WATERS COMPANY Statement of Cash Flows For the year ended December 31, Current year Amount $ Operating Activities Net Income 200 Adjustments: Non-Cash adjustment: Depreciation 0 Due to changes in Working capital Due to changes in accounts receivable (900-600) -300 Due to changes in Prepaid expenses (110-150)                  40 Due to changes in wages payable (960-1400)              -440 Net Cash provided (used) by operating activities              -500 Investing Activities Cash used to acquire gross fixed assets              -400 Net cash provided (used) by investing activities              -400 Financing Activities Due to change in common stock                600 Net cash provided (used) by investing activities)                600 Net increase/decrease in cash              -300 Add: Cash balance at the begining of the year            4,200 Cash balance at the end of the year            3,900

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