Question

CP12-4 Preparing and Interpreting a Statement of Cash Flows (Indirect Method) [LO 12-2, LO 12-3, LO 12-4, LO 12-5]

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.

	Current Year			Previous Year
Balance Sheet at December 31
Cash	$	14,340		$	9,500
Accounts Receivable		3,100			4,100
Equipment		11,000			10,000
Accumulated Depreciation—Equipment		(3,660	)		(3,100	)
	$	24,780		$	20,500
Accounts Payable	$	1,600		$	2,600
Salaries and Wages Payable		1,240			1,800
Note Payable (long-term)		3,600			1,000
Common Stock		10,000			10,000
Retained Earnings		8,340			5,100
	$	24,780		$	20,500
Income Statement
Service Revenue	$	77,400
Salaries and Wages Expense		71,000
Depreciation Expense		560
Income Tax Expense		2,600
Net Income	$	3,240

Additional Data:

a.	Bought new golf clubs using cash, $1,000.
b.	Borrowed $2,600 cash from the bank during the year.
c.	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.

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.)

Cash flow from operating activities

Adjst to reconcile net income to net cash provided by operating activities

Cash flows from investing activities

Cash flows from financing activities

Answer 1