Prepare the statement of cash flows (direct or indirect method). ( \(L O 2,3,4,5,6,7)\) The income statement for the year ending December 31, 2007, and the balance sheets at December 31, 2006, and December 31, 2007, for Samsula Service Company are presented here.

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a. Prepare a statement of cash flows for the year ending December 31, 2007, using

(a) the direct method and

(b) the indirect method.

b. Why is the statement of cash flows important to the company and to parties external to the company?

c. As a user, which format would you prefer-direct or indirect-and why?

d. Evaluate the way in which the company spent its cash during the year. Do you think the company is in a sound cash position?

e. Calculate the firm's free cash flow for the 2 years shown.

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Samsula Service Company Income Statement For the Year Ended Dec. 31, 2007 (amounts in thousands, except earnings per share) Service revenue Expenses: Wages and salaries Advertising Rent Depreciation $60,000 10,000 4,800 3,600 Miscellaneous 5,200 Total expenses Income before taxes Income taxes Net income Earnings per share $ 92,000 83,600 $ 8,400 2,940 $ 5,460 $ 0.55