The income statement for the year ended December 31, 2011, and the balance sheets at December 31, 2010, and December 31, 2011, for the service company(see attached)

1. Prepare a statement of cash flows for the year ended December 31, 2011, using (a) the direct method and (b) the indirect method.

2. Why is the statement of cash flows important to the company and to parties external to the company?

3. Evaluate the way in which the company spent its cash during the year. Do you think the company is in a sound cash position?

4. Calculate the firm's free cash flow for the most recent year.

Jon's Service Company Income Statement For the Year Ended December 31, 2011 160,000 HA (amounts in thousands, except earnings per share) Service revenue Expenses: Wages and salaries Advertising Rent Depreciation Supplies Total expenses Income before taxes. 60,700 11,400 3,400 5,000 5,600 86,100 $ 73,900 25,865 Income taxes $ 48,035 Net income. 0.30 Earnings per share. $ $ 3,900 52,185 11,800 200 820 14,900 370 640 65,005 $ 19,810 $ (amounts in thousands) Assets: Current assets: Cash Accounts receivable Supplies Prepaid advertising Total current assets Property, plant, and equipment Equipment Less: accumulated depreciation Total property, plant, and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: Wages and salaries payable Taxes payable Total current liabilities Stockholders' equity: Common stock 50,000 23,400 46,000 18,400 26,600 27,600 $ 91,605 47,410 $ $ 2.900 1,980 3,500 1,820 EA 4,880 $ 5,320 $ $ 16,000 70,725 16,000 26,090 Retained earnings $ 86,725 $ 42,090 01 CO 47 410