PB12-4 Preparing and Interpreting a Statement of Cash Flows (Indirect Method) [L

Question

PB12-4 Preparing and Interpreting a Statement of Cash Flows (Indirect Method) [LO 12-2, LO 12-3, LO 12-4, LO 12-5] Dive In Company was started several years ago by two diving instructors. The company's comparative balance sheets and income statement are presented below. CurrentPrevious Year ear Balance Sheet at December 31 Cash Accounts Receivable Prepaid Expenses $ 6,000 $6,900 3,000 1,500 150 300 $ 9,300 $8,550 Common Stock Retained Earnings Salaries and Wages Payable 1,350 $3,100 3,200 2,000 4,750 3,450 $ 9,300 $8,550 Income Statement Service Revenue Salaries and Wages Expense Other Operating Expenses $55,950 50,000 4,650 Net Income $1,300 Additional Data: a. Prepaid Expenses relate to rent paid in advance. b. Other Operating Expenses were paid in cash. c. An owner contributed capital by paying $1,200 cash in exchange for the company's stock. 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 by a minus sign.

Explanation / Answer

Cash flows from operating activities: Net income 1300 Adjustments to reconcile net income to net cash provided by operating activities: Increase in accounts receivable -1500 Increase in prepaid expenses -150 Decrease in salaries and wages payable -1750 -3400 Net cash used for operating activities -2100 Cash flows from investing activities: Net cash used for investing activities 0 Cash flows from financing activities: Cash proceeds from issuing stock 1200 Net cash provided by financing activities 1200 Net decrease in cash during the year -900 Cash balance, January 1 6900 Cash balance, December 31 6000

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