For the year ending March 31, 20Y5, Omega Systems Inc. reported net income of $105,450 and paid dividends of $7,500. Comparative balance sheets as of March 31, 20Y5 and 20Y4, are as follows:

Instructions
1. Prepare a statement of cash flows, using the indirect method.
2. Why is depreciation added to net income in determining net cash flows from operating activities?Explain.

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OMEGA SYSTEMS INC Balance Sheets Changes Increase 20Y4 (Decrease March 31 20Y5 Assets Current assets: Cash Accounts receivable Merchandise inventory 39,500 29,250 78,000 122,550 4435 4,500 295,000 $238,735 114,120 133,150 4,255 3,975 10,250 36,120 10,600 (180) 56,265 Property, plant, and equipment: .. .. 30,000 30,000 S Land Store equipment.... Accumulated de Office equipment Accumulated depreciation-office equipment .. 50,000 285,000 18,550 93,900) (24,650) 23,355 (7,080) 65,000 preciation store equipment 8,355 (3,735) 277,725 $232,755 44,970 ...$572,725 $471,490 101,235 15,000 (3,345) Total assets.... Liabilities Current liabilities: Accounts payable Notes payable (current portion) ..$33,630 7,500 1,710 2,700 21,405 7,500 2,250 3,600 12,225 (540) (900) Unearned rent Total current liabilities $ 45,540 S 34,755 10,785 . Long-term liabilities: Notes payable (final payment due in eight years) 30,000 37,500 (7,500) Stockholders Equity 97,950 497,185 $399,235 97,950 572,725 $471490 $101,235 459,685 361,735 Total stockholders' equity Total liabilities and stockholders' equity