The income statement for the year ended December 31, 2011, and the balance sheets at December 31, 2010, and December 31, 2011, for Craig€™s Service Company are presented here.

Requirements
1. Prepare a statement of cash flows for the year ended December 31, 2011, using (a) the direct method and (b) the indirect method.
2. Why is the statement of cash flows important to the company and to parties external to the company?
3. As a user, which format would you prefer€”direct or indirect€”and why?
4. Evaluate the way in which the company spent its cash during the year. Do you think the company is in a sound cash position?
5. Calculate the firm€™s free cash flow for the most recentyear.

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Craig's Service Company Income Statement For the Year Ended December 31, 2011 (amounts in thousands, except earnings per share) Service revenue .$92,000 $60,000 10,000 Wages and salaries Rent Depreciation Supplies 4,800 3,600 5,200 Total expenses Income before taxes ....83,600 2.940 5460 Net income Earnings per share . .. Craig's Service Company Comparative Balance Sheets December 31, 2011 December 1 2010 (amounts in thousands Assets: Current assets: as Accounts receivable Supplies Prepaid advertising 200 800 $19,910 3,500 14,000 370 660 $18,630 Total current assets Property, plant, and equipment Equipment Less: accumulated depreciation $44,000 .21,600 $40,000 18,000 Total property, plant, and equipment Total assets 22.400 .. $42,310 22.000 $40,530 Liabilities and Stockholders' Equity: Current liabilities: Wages and salaries payable Taxes payable 串2,700 1,900 串4,600 S 3,300 1.780 . S 5,080 Total current liabilities Stockholders' equity: Common stock.. Retained earnings .. $30,000 7710 $30,000 5,450 35.450 $37,710 $42,310 Total liabilities and stockholders equity