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Statement of Cash Flows Using Indirect Method For the year ending March 31, 20YS, Omega Systems Inc. reported net income of $105,450 and paid dividends of $7,500. Comparative balance sheets as of March 31, 20Y5 and 20Y4, are as follows: OMEGA SYSTEMS INC. Balance Sheets March 31, Changes Increase (Decrease) 20YS 20Y4 Assets Current assets: Cash Accounts receivable Inventory Estimated Returns Inventory Office supplies Prepaid insurance $39,500 29,250 114,120 78,000 126,550 117,550 5,000 4,435 4,500 $ 295,000 $238,735 10,250 36,120 9,000 1,600 (180) (525) 56,265 6,600 4,255 3,975 Total current assets Property, plant, and equipment: Land 30,000 30,000 Store equipment Accumulated depreciation-store equipment Office equipment Accumulated depreciation-office equipment 350,000 285,000 (118,550) (93,900) 23,355 15,000 (7,080) (3,345) $277,725 $232,755 $572,725 $471,490 65,000 (24,650) 8,355 (3,735) 44,970 $101,235 Total property, plant, and equipment Total assets Liabilities Current liabilities 10,725 Accounts payable Customer refunds payable Notes payable (current portion) Salaries payable Unearned rent $24,630 $ 13,905 7,500 7,500 2,250 3,600 45,540 34,755 9,000 7,500 1,710 2,700 1,500 (540) (900) 10,785 Total current liabilities Long-term liabilities: Notes payable (final payment due in eight years) 30,000 37,500 (7,500) Total liabilities 75,540 72,255 $3,285 Stockholders' Equity Common stock 37,500 37,500 $ 0 Retained earnings Total stockholders' equity Total liabilities and stockholders' equity 459,685 361,735 $497,185 $399,235 $572,725 $471,490 97,950 97,950 $101,235 Instructions: 1. Prepare a statement of cash flows, using the indirect method. Enter account decreases, cash outflows, and the income statement effects that reduce net income as negative amounts. Omega Systems Inc. Statement of Cash Flows For the Year Ended March 31, 20YS Cash flows from operating activities: Changes in noncash current operating assets and liabilities: Net cash flows from operating activities Cash flows used for investing activities: Net cash flows used for investing activities Cash flows used for financing activities: Net cash flows used for financing activities 2. Which of the following is the best explanation of why is depreciation added to net income in determining net cash flows from operating activities