Assume the same facts as PA12-4, except for the income statement and additional data item a.

The new income statement is shown on the following page. Instead of item a from PA12-4, assume that the company bought new equipment for \($1,500\) cash and sold existing equipment for \($500\) cash. The equipment that was sold had cost \($1,000\) and had Accumulated Depreciation of \($250\) at the time of sale.

Required:

1. Prepare the statement of cash flows for the year ended December 31, 2010, using the indirect method.

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

Data from PA12-4

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.

Transcribed Image Text:

Income Statement for 2010 Lessons Revenue $37,500 Wages Expense 35,000 Depreciation Expense 500 Loss on Disposal of Equipment 250 Income Tax Expense 500 Net Income $ 1,250