Refer to CP12-4.
In CP12-4.
Soft Touch Company was started several years ago by two golf instructors. The company's comparative balance sheets and income statement are presented below, along with additional information.
2013 2012
Balance Sheet at December 31
Cash ............................................. $13,500 .............. $ 8,000
Accounts Receivable ............................... 2,500 ................ 3,500
Equipment ........................................ 11,000 ............... 10,000
Less: Accumulated Depreciation ............. (3,000) .............. (2,500)
..................................................... $24,000 ............ $19,000
Accounts Payable ............................... $ 1,000 .............. $ 2,000
Wages Payable ..................................... 1,000 ................. 1,500
Long-term Bank Loan Payable .................. 3,000 ................. 1,000
Contributed Capital ................................. 10,000 ............... 10,000
Retained Earnings ..................................... 9,000 ................ 4,500
.......................................................... $24,000 ............. $19,000
Income Statement for 2013
Lessons Revenue .............................. $75,000
Wages Expense ................................. 68,000
Depreciation Expense ............................. 500
Income Tax Expense ............................ 2,000
Net Income .................................... $ 4,500
Additional Data:
a. Bought new golf clubs using cash, $1,000.
b. Borrowed $2,000 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 Income Tax
Expense was fully paid in cash.
Required:
1. Prepare the statement of cash flows for the year ended December 31, 2013, using the direct method.
2. Use the statement of cash flows to evaluate the company's cash flows.