Chapter 12, Problem 7PA

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

Assume the same facts as PA12-4, except for the income statement and additional data item (a). The new income statement is shown on the following page. Instead of item (a) from PA12-4, assume that the company bought new equipment for $1,800 cash and sold existing equipment for $500 cash. The equipment that was sold had cost $1,300 and had Aceumulated Depreciation of $250 at the time of sale.

Income Statement
Service Revenue	$37,500
Salaries and Wages Expense	35,000
Depreciation Expense	500
Loss on Disposal of Equipment	550
Income Tax Expense	200
Net Income	$ 1,250

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.