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.

Additional Data:

a. Bought new hockey equipment for cash, \($500.\)

b. Borrowed \($1,000\) cash from the bank during the year.

c. 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 year ended December 31, 2010, using the indirect method.

2. Use the statement of cash flows to evaluate the company’s cash flows.

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2010 2009 Balance Sheet at December 31 Cash $ 6,000 $4,000 Accounts Receivable 1,000 1,750 Equipment 5,500 5,000 Less: Accumulated Depreciation (1,500) (1,250) $11,000 $9,500 Accounts Payable $ 500 $1,000 Wages Payable 500 750 Long-Term Bank Loan Payable 1,500 500 Contributed Capital 5,000 5,000 Retained Earnings 3,500 2,250 $11,000 $9,500 Income Statement for 2010 Lessons Revenue $37,500 Wages Expense 35,000 Depreciation Expense 250 Income Tax Expense 1,000 Net Income $ 1,250