The following balances are available for Madison Company:

Bonds were issued during 2014 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 2014 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 2013 2014 $ 12,000 $ 10,000 Cash Accounts receivable 10,000 12,000 Inventory Prepaid rent 8,000 7,000 1,200 1,000 75,000 Land 75,000 Plant and equipment Accumulated depreciation Totals 200,000 150,000 (75,000) (25,000) $231,200 $230,000 $ 15,000 2,000 22,500 $ 15,000 Accounts payable Income taxes payable Short-term notes payable Bonds payable Common stock 2,500 20,000 50,000 75,000 100,000 100,000 Retained earnings 18,700 40,500 $230,000 Totals $231,200