Following are the income statements for Ocoee Oil Company for the year ended December 31, 2011, and the balance sheets at December 31, 2010 and 2011.

Requirements
1. Prepare a statement of cash flows for the year ended December 31, 2011, using (1) the direct method and (2) 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€”direct or indirect€”would you prefer 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. Compute the firm€™s free cashflow.

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Ocoee Oil Company Income Statement For the Year Ended December 31, 2011 $150,000 63,000 -. 87,000 Salles revenue...-.. Cost of goods sold Gross margin Other expenses: Wages and salaries Depreciation and depletion Miscellaneous $32,000 12,400 .48,900 38,100 8,200 29,900 Income before taxes Income taxes Net income Ocoee Oil Company Comparative Balance Sheets December 31 2011 December 31 2010 Assets Current assets: Cash Accounts receivable Inventory Total current assets Property, plant, and equipment Equipment 2,900 60,000 62,900 串6,400 2,700 42,000 $51,100 $ 39,000 82,300 (15,600) Less: accumulated depreciation (20,100) Total property, plant, and equipment Total assets Liabilities and shareholders' equity Current liabilities: Accounts payable .. $6,400 Salaries payable Taxes payable Total current liabilities Notes payable Total liabilities.. Shareholders' equity Common stock . . Retained earnings Total shareholders' equity Total liabilities and shareholders' equity. . 62,200 $125,100 23,400 $74,500 1,500 1,900 9,800 30,000 $ 5,700 1,300 2,100 $ 9,100 10,000 39,800 $19,100 串40,000 45,300 串40,000 15,400 . . . 85,300 $125,100 55,400 $74,500