Question

Heads Up Company was started several years ago by two hockey instructors. The company’s comparative balance sheets and income statement follow, along with additional information.

	Current Year			Previous Year
Balance Sheet at December 31
Cash	$	5,920		$	3,740
Accounts Receivable		810			1,570
Equipment		4,510			4,100
Accumulated Depreciation—Equipment		(1,320	)		(1,160	)
Total Assets	$	9,920		$	8,250
Accounts Payable	$	690		$	1,100
Salaries and Wages Payable		590			750
Note Payable (long-term)		1,500			500
Common Stock		4,100			4,100
Retained Earnings		3,040			1,800
Total Liabilities and Stockholders’ Equity	$	9,920		$	8,250
Income Statement
Service Revenue	$	41,300
Salaries and Wages Expense		38,800
Depreciation Expense		160
Income Tax Expense		1,100
Net Income	$	1,240

Additional Data:

1. Bought new hockey equipment for cash, $410.
2. Borrowed $1,000 cash from the bank during the year.
3. 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.

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.)

Answer 1

3 $ 1,240 Heads Up Company Statement of Cashflow For the Year Ended December 31 4 Cash flows from operating activities: 5 Net income Adjustments to reconcile net income to net cash 6 provided by operating activities: 7 Depreciation expense 8 Changes in current assets and current liabilities: 9 Decrease in accounts receivable 10 Decrease in accounts payable 11 Decrease in salaries and wages payable $ 160 $ 760 $ -410 $ -160 12 $ 350 $ 1,590 $ -410 $ -410 13 Net cash provided by operating activities 14 Cash flows from investing activities: 15 Cash paid for purchase of equipment 16 Net cash used for investing activities 17 Cash flows from financing activities: 18 Proceeds from bank loan 19 Net cash provided by financing activities 20 Net increase in cash during the year 21 Cash balance, January 1 22 Cash balance, December 31 $ 1,000 $ 1,000 $ 2,180 $ 3,740 $ 5,920

B Heads Up Company Statement of Cashflow For the Year Ended December 31 4 Cash flows from operating activities: 5 Net income Adjustments to reconcile net income to net cash 6 provided by operating activities: 7 Depreciation expense 160 8 Changes in current assets and current liabilities: 9 Decrease in accounts receivable =1570-810 10 Decrease in accounts payable =690-1100 11 Decrease in salaries and wages payable =590-750 12 13 Net cash provided by operating activities 14 Cash flows from investing activities: 15 Cash paid for purchase of equipment 1-410 16 Net cash used for investing activities 17 Cash flows from financing activities: 18 Proceeds from bank loan 1000 19 Net cash provided by financing activities 20 Net increase in cash during the year 21 Cash balance, January 1 22 Cash balance, December 31 =SUM(B7:B11) =+C5+C12 -410 =+B18 =+C13+C16+C19 3740 =+C20+C21