Statement of Cash Flows (Indirect Method) Dair Company's income statement and comparative balance sheets follow. DAIR COMPANY Income Statement For Year Ended December 31,2011 Sales $ 700,000 Cost of goods sold $ 440,000 Wages and other operating expenses 95,000 Depreciation expense 21,000 Amortization expense 6,000 Interest expense 10,000 Income tax expense 36,000 Loss on bond retirement 5,000 613,000 Net income $87,000 DAIR COMPANY Balance Sheets Dec. 31, 2011 Dec. 31, 2010 Assets Cash $ 22,000 $ 18,000 Accounts receivable 54,000 48,000 Inventory 103,000 109,000 Prepaid expenses 12,000 10,000 Plant assets 360,000 336,000 Accumulated depreciation (86,000) (84,000) Intangible assets 44,000 50,000 Total assets $ 509,000 $ 487,000 Liabilities and Stockholders' Equity Accounts payable $31,000 $ 26,000 Accounts payable Interest payable Income tax payable Bonds payable Common stock Retained earnings Total liabilities and equity $ 31,000 3,000 6,000 60,000 252,000 157,000 $ 509,000 $ 26,000 7,000 8,000 120,000 228,000 98,000 $ 487,000 During 2011, the company sold for $17,000 cash old equipment that had cost $36,000 and had $19,000 accumulated depreciation. Also in 2011, new equipment worth $60,000 was acquired in exchange for $60,000 of bonds payable, and bonds payable of $120,000 were retired for cash at a loss. A $28,000 cash dividend was declared and paid in 2011. Any stock issuances were for cash. (a) Compute the change in cash that occurred in 2011. Cash, December 31, 2011 $ Cash, December 31, 2010 Cash increase during 2011 $ (b) Prepare a 2011 statement of cash flows using the indirect method. Use negative signs with answers to show a decrease in cash. DAIR COMPANY STATEMENT OF CASH FLOWS FOR YEAR ENDED DECEMBER 31, 2011 Net Cash Flow from Operating Activities Net Income Add (Deduct) Items to Convert Net Income to Cash Basis Depreciation Amortization expense Loss on Bond Retirement Loss on Bond Retirement Accounts Receivable Increase Inventory Decrease Prepaid Expenses Increase Accounts Payable Increase Interest Payable Decrease Income Tax Payable Decrease Net Cash Provided by Operating Activities Cash Flows from Investing Activities Sale of Equipment Cash Flows from Financing Activities Retirement of Bonds Payable Issuance of Common Stock Payment of Dividends Net Cash Used by Financing Activities Net Increase in Cash Cash at Beginning of Year Cash at End of Year (c) Prepare separate schedules showing (1) cash paid for interest and for income taxes and (2) noncash investing and financing transactions. (1) Supplemental Cash Flow Disclosures Cash Paid for Interest Cash Paid for Income Taxes (2) Schedule of Noncash Investing and Financing Activities Issuance of Bonds Payable to Acquire Equipment