Chapter 12, Problem 7CP

(Supplement 12A) Preparing and Interpreting a Statement of Cash Flows with Loss on Disposal (Indirect Method)

Assume the same facts as CP12-4, except for additional data item (a) and the income statement. Instead of item (a) from CP12-4, assume that the company bought new golf clubs for $3,000 cash and sold existing clubs for $1,000 cash. The clubs that were sold had cost $2,000 and had Accumulated Depreciation of $500 at the time of sale. The corrected income statement follows.

Income Statement
Service Revenue	$75,000
Salaries and Wages Expense	68,000
Depreciation Expense	1,000
Loss on Disposal of Equipment	500
Income Tax Expense	1,000
Net Income	$ 4,500

Required:

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