Chapter 12, Problem 4PB

Preparing and Interpreting a Statement of Cash Flows (Indirect Method)

Dive In Company was started several years ago by two diving instructors. The company’s comparative balance sheets and income statement are presented below. Additional information is presented on the following page.

	Current Year	Previous Year
Balance Sheet at December 31
Cash	$ 3,200	$4,000
Accounts Receivable	1,000	500
Prepaid Rent	100	50
	$ 4,300	$4,550
Salaries and Wages Payable	$ 350	$1,100
Common Stock	1,200	1,000
Retained Earnings	2,750	2,450
	$ 4,300	$4,550
Income Statement
Service Revenue	$33,950
Salaries and Wages Expense	30,000
Rent and Office Expenses	3,650
Net Income	$ 300

Additional Data:

1. a. Rent is paid in advance each month, and Office Expenses are paid in cash as incurred.
2. b. An owner contributed capital by paying $200 cash in exchange for the company’s stock.

Required:

1. 1. Prepare the statement of cash flows for the current year ended December 31 using the indirect method.
2. 2. Use the statement of cash flows to evaluate the company’s cash flows.