Zazzy Company Income Statement For the Period Ended December 31, 2018

Sales $636,000

Cost of Goods Sold 240,000

Gross Profit 396,000

Office Expenses 242,000

Depreciation Expense 9,000

Income from Operations 145,000

Interest Expense 0

Income before Income Tax 145,000

Income tax expense 120,000

Net Income $25,000

Zazzy Company Comparative Balance Sheets December 31, 20XX

2018 2017

Assets: Cash and cash equivalents $84,000 $48,700

Accounts Receivable 53,600 50,000

Inventory 39,600 39,000

Prepaid Expenses 5,500 15,000

Equipment 206,000 200,000

Accumulated Depreciation - Equipment (126,700) (117,700)

Total assets $262,000 $235,000

Liabilities: Accounts Payable $48,000 $49,000

Accrued Liabilities 44,000 42,000

Stockholders' Equity: Common Stock 10,000 9,000

Retained Earnings 160,000 135,000

Total Liabilities & S/H Equity $262,000 $235,000

Additional information:

1. No equipment was sold throughout the year, so the change in accumulated depreciation is a result of depreciation expense for the year.
2. Stock was issued for cash.
3. Equipment was purchased with cash.

Required:

1. Prepare a FULL statement of cash flows for the year 2018, including the Operating, Investing and Financing sections, assuming that Zazzy Company uses the INDIRECT method.
2. Can a company have a positive cash flow and negative income? What about positive income and negative cash flow? Explain your answer.

3. Prepare the FULL Statement of Cash Flows for Zazzy Company for the year 2018, assuming they use the DIRECT method.