ezto.mheducation.com/hm.tpx CP12-4 Preparing and Interpreting a Statement of Cas

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ezto.mheducation.com/hm.tpx CP12-4 Preparing and Interpreting a Statement of Cash Flows (Indirect Method) [LO 12-2, LO1 two golf instructors. The company's comparative Soft Touch Company was started several years ago by balance sheets and income statement are presented below, along with additional information. Current Previous Year Year Balance Sheet at December 31 Cash Accounts Receivable Equipment Accumulated Depreciation-Equipment (3,880) (3,300) $14,520 $10,000 4,300 12,000 3,200 13,200 $27,040 $23,000 Accounts Payable Salaries and Wages Payable Note Payable (long-term) Common Stock Retained Earnings $1,800 1,320 3,800 12,000 8,120 2,800 1,900 1,000 12,000 5,300 $27,040 $23,000 Income Statement Service Revenue Salaries and Wages Expense Depreciation Expense ncome Tax Expense $78,200 72,000 580 2,800 Net Income 2,820 Additional Data: a. Bought new golf clubs using cash, $1,200. b. Borrowed $2,800 cash from the bank during the year c. Accounts Payable indludes 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. Required: 1. 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 $ 2,820 Add (deduct) to reconcile net income to net cash flow: Depreciation expense        580 Accounts receivable decrease     1,100 Accounts payable decrease (1,000) Accrued liabilities decrease       (580) Net cash inflow from operating activities $   2,920 Cash flows from investing activities: Fixed assets purchased (1,200) Net cash outflow from investing activities      (1,200) Cash flows from financing activities: Issuance of long-term debt     2,800 Net cash inflow from financing activities       2,800 Net increase in cash during the year       4,520 Cash, January 1     10,000 Cash, December 31 $ 14,520

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