For the year ending March 31, 2013, Omega Systems Inc. reported net income of $105,450 and paid dividends of $7,500. Comparative balance sheets as of March 31, 2013 and 2012, are as follows:

Instruction
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.

OMEGA SYSTEMS INC. Balance Sheets March 31 Changes 2013 2012 Increase (Decrease) Assets Current assets: Cash Accounts receivable Merchandise inventory Office supplies Prepaid insurance 39,500 29,250 78,000 133,150 22,550 4,435 4,500 295,000 $238,735 S 10,250 36,120 10,600 (180) 114,120 4,255 3,975 Total current assets S 56,265 Property, plant, and equipment: Land Store equipment Accumulated depreciation store equipment Office equipment Accumulated depreciation office equipment 30,000 30,000 350,000 285,000 (118,550 93,900) 15,000 (3,345) 277,725 $232,755 572,725 $471,490 65,000 (24,650) 8,355 (3,735) 44,970 $101,235 23,355 (7,080) Total property, plant, and equipment Total assets Liabilities Current liabilities: Accounts payable Notes payable (current portion) Salaries payable Unearned rent 33,630 21405 7,500 2,250 3,600 45,540 34,755 12,225 7,500 1,710 2,700 (540) (900) S 10,785 Total current liabilities Long-term liabilities: Notes payable (final payment due 2019) 37,500 75,540 72,255 (7,500) 3,285 30,000 Total liabilities Stockholders' Equity Capital stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity 37,500 37,500 459,685 497,185 $399,235 572,725 $471,490 97,950 S 97,950 101,235 361,735