Statement of Cash Flows—Indirect Method The following balances are available for Madison Company:

Bonds were issued during 2008 at face value, and plant and equipment were acquired for cash.
Depreciation expense for the year was $50,000. A net loss of $21,800 was reported.
Required 1. Prepare a statement of cash flows for 2008 using the indirect method in the Operating Activities section.
2. Briefly explain how Madison was able to increase its cash balance during a year in which it incurred a net loss.

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December 31 2008 2007 Cash $ 12,000 $ 10,000 Accounts receivable 10,000 12,000 Inventory 8,000 7,000 Prepaid rent 1,200 1,000 Land 75,000 75,000 Plant and equipment 200,000 150,000 Accumulated depreciation (75,000) (25,000) Totals $231,200 $230,000 Accounts payable $ 15,000 $ 15,000 Income taxes payable 2,500 2,000 Short-term notes payable 20,000 22,500 Bonds payable 75,000 50,000 Common stock 100,000 100,000 Retained earnings Totals 18,700 40,500 $231,200 $230,000