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Soft Touch Company was started several years ago by two golf instructors. The company’s comparative balance sheets and income statement are presented below, along with additional information.
Accounts Payable includes only purchases of services made on credit for operating purposes. Because there are no liability accounts relating to income tax, assume that Income Tax Expense was fully paid in cash.
Prepare the statement of cash flows for the current year ended December 31 using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)
Explanation / Answer
SOFT TOUCH COMPANY Statement of Cash Flows For the Year Ended December 31 Cash Flows from Operating Activities: Net Income $4,290 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation Expense $510 Decrease in Accounts Receivables $1,200 Decrease in Accounts Payable -$1,000 Decrease in Salaries and Wages Payable -$510 $200 Net Cash available from Operating activities $4,490 Cash Flows from Investing Activities: Purchase of Equipment (new golf clubs) -$1,100 Net cash used for Investing activities -$1,100 Cash Flows from Financing Activities: Borrowing from Bank $2,100 Net Cash available from Financing activities $2,100 Net Cash Surplus $5,490 Add : Beginning Cash balance $8,250 Ending Cash balance $13,740
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