Question

Heads Up Company was started several years ago by two hockey instructors. The company's comparative balance sheets and income statement are provided below, along with additional information. 2017 2016 Balance Sheet at December 31 Cash Accounts Receivable Equipment Less: Accumulated Depreciation $ 6,000 1,000 5,500 (1,500) $ 4,000 1,750 5,000 (1,250) $ 11,000 $ 9,500 $ Accounts Payable Wages Payable Long-Term Bank Loan Payable Contributed Capital Retained Earnings 500 500 1,500 5,000 3,500 $ 1,000 750 500 5,000 2,250 $ 11,000 $9,500 Income Statement for 2017 Lessons Revenue Wages Expense Depreciation Expense Income Tax Expense $ 37,500 35,000 250 1,000 Net Income $ 1,250 Additional notes. a. Bought new hockey equipment for cash, $500. b. Borrowed $1,000 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 this expense was fully paid in cash.

1. Prepare the statement of cash flows for the year ended December 31, 2017, using the indirect method. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

Answer HEADS UP COMPANY Statement of Cash Flows For the Year Ended December 31, 2017 Cash flows from operating activities: $1,250 Net Income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Expense ($1,500- $1,250) Changes in current assets and current liabilities: Decrease in accounts receivable ($1,750 $1,000) Decrease in accounts payable ($1,000 $500) Decrease in wages payable ($750- $500) $250 $750 ($500) ($250) $1,500 Net cash provided by operating activities (a) Cash flows from investing activities: ($500) Cash payments to purchase equipment ($500) Net cash provided by (used in) investing activities (b) Cash flows from financing activities: $1,000 Cash proceeds from bank loan $1,000 Net cash provided by financing activities (c) $2,000 Net increase in cash during the year [(a) + (b) + (c)] $4,000 Cash balance, January 1, 2017 $6,000 Cash balance, December 31, 2017