The following is the cash account of JKI Advertising Agencies for the year ended December 31, 2008:

Provided next are the income statement for the year ended December 31, 2008 and the balance sheet as of December 31, 2008 for JKI Advertising Agencies.
Assume there are no bad debts and no deferred taxes.

Required:
1. Based on the Cash account, prepare a statement of cash flows using the direct approach.
2. Prepare the balance sheet as of December 31, 2007.
3. Prepare the operating section of the cash flow statement for the year ended December 31, 2008 under the indirect approach.
4. Evaluate the following statements:

a. Because depreciation is added to net income when calculating cash flow from operations, depreciation is a direct source of operating cash flow.

b. Over the entire life of a company, its cash flow from operations will equal its net income.
5. JKI has the policy to accrue an employee’s incentive bonus at 20% of salary. Instead, if JKI had calculated the bonus at 25% of salary, what would be the revised figure for cash flow from operations under the indirect approach?

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Cash Account Rent collected Beginning balance as of 1/1/08 Cash collected from clients Cash received from sale of land at book value. Capital contributions DR $ 30,000 CR 215,000 150,000 50,000 35,000 Line of credit borrowing from Town Bank 50,000 Salaries paid $130,000 Purchase of office equipment 20,000 Cash paid for insurance 12,000 Building loan repaid 85,000 Cash paid for interest 9,000 Dividends declared and paid 18,000 Cash paid for customer lawsuit 32,000 Cash paid for taxes 31,000 $530,000 $337,000 Ending balance as of 12/31/08 $193,000.