Question

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.

	Current Year			Previous Year
Balance Sheet at December 31
Cash	$	6,200		$	3,800
Accounts Receivable		850			1,650
Equipment		4,950			4,500
Accumulated Depreciation—Equipment		(1,400	)		(1,200	)
Total Assets	$	10,600		$	8,750
Accounts Payable	$	550		$	1,000
Salaries and Wages Payable		550			750
Note Payable (long-term)		1,700			500
Common Stock		4,500			4,500
Retained Earnings		3,300			2,000
Total Liabilities and Stockholders’ Equity	$	10,600		$	8,750
Income Statement
Service Revenue	$	40,500
Salaries and Wages Expense		38,000
Depreciation Expense		200
Income Tax Expense		1,000
Net Income	$	1,300

Additional Data:

1. Bought new hockey equipment for cash, $450.
2. Borrowed $1,200 cash from the bank during the year.
3. 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 current year ended December 31 using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

HEADS UP COMPANY Statement of Cash Flows For the Year Ended December 31 Cash Flows from Operating Activities: Net Income Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation Expense Decrease in Accounts Payable Decrease in Accounts Payable Decrease in Salaries and Wages Payable Net Cash Provided by Operating Activities 0 Cash Flows from Investing Activities: Cash Payments to Purchase Equipment 0 Cash Flows from Financing Activities: Cash Proceeds from Bank Loan Net Cash Provided by Financing Activities 0 Net Decrease in Cash during the Year Cash Balance, January 1 $0

Answer 1

HEADS UP COMPANY
Statement of Cash Flows
For the Year Ended December 31
Cash Flows from Operating Activities:
Net Income		$1,300.00
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation Expense	$200.00
Decrease in Accounts Receivable	$800.00
Decrease in Accounts Payable	-$450.00
Decrease in Salaries and Wages Payable	-$200.00	$350.00
Net Cash Provided by Operating Activities		$1,650.00
Cash Flows from Investing Activities:
Cash Payments to Purchase Equipment	-$450.00
Net Cash used by Investment activities		-$450.00
Cash Flows from Financing Activities:
Cash Proceeds from Bank Loan	$1,200.00
Net Cash Provided by Financing Activities		$1,200.00
Net Increase / (Decrease) in Cash during the Year		$2,400.00
Cash Balance, January 1		$3,800.00
Cash Balance on 31 Decemebe		$6,200.00