Soft Touch Company was started several years ago by two golf instructors. The company?s comparative balance sheets and income statement appear below, along with additional information.

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 this expense was fully paid in cash.

Required:

1. Prepare the statement of cash flows for the year ended December 31, 2017, using the indirect method.

TIP: Net cash flows provided by operating activities equal $3,000.

TIP: Net cash used in investing activities equals $1,000.

TIP: Net cash provided by financing activities equals $2,000.

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

TIP: Demonstration Case A provides a good example of information to consider when evaluating cash flows.

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2017 2016 Balance Sheet at December 31 $ 8,000 $12,000 Cash Accounts Receivable 2,000 3,500 11,000 Equipment 10,000 Less: Accumulated Depreciation (3,000) (2,500) $22,000 $19,000 $ 1,000 1,000 $ 2,000 Accounts Payable Wages Payable Long-Term Bank Loan Payable Contributed Capital 1,500 3,000 1,000 10,000 10,000 Retained Earnings 7,000 4,500 $22,000 $19,000 Income Statement for 2017 $75,000 70,000 Lessons Revenue Wages Expense 500 Depreciation Expense Income Tax Expense 2,000 $ 2,500 Net Income