Audio City, Inc., is developing its annual financial statements at December 31, 2010. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized below:

Additional Data:

a. Bought equipment for cash, \($60,000.\)

b. Paid \($15,000\) on the long-term note payable.

c. Issued new shares of stock for \($30,000\) cash.

d. Dividends of \($5,000\) were paid in cash.

e. Other expenses included depreciation, \($15,000;\) wages, \($20,000;\) taxes, \($25,000.\)

f. Accounts Payable includes only inventory purchases made on credit. Because a liability relating to taxes does not exist, assume that they were fully paid in cash.

Required:

1. Prepare the statement of cash flows for the year ended December 31, 2010, using the indirect method.

2. Evaluate the statement of cash flows.

Transcribed Image Text:

Balance Sheet at December 31 2010 2009 Cash $ 63,000 $ 65,000 Accounts Receivable 15,000 20,000 Merchandise Inventory 22,000 20,000 Property and Equipment 210,000 150,000 Less: Accumulated Depreciation (60,000) (45,000) $250,000 $210,000 Accounts Payable $ 8,000 $ 19,000 Wages Payable 2,000 1,000 Note Payable, Long-Term 60,000 75,000 Contributed Capital 100,000 70,000 Retained Earnings 80,000 45,000 $250,000 $210,000 Income Statement for 2010 Sales $190,000 Cost of Goods Sold 90,000 Other Expenses 60,000 Net Income $ 40,000