The Extra Surplus Company's Balance Sheet for December 31,2017 and the Income Statement for 2018 are shown below.

\text { Bulunce Sheet as of Decernber 31,2017 }

\begin{array}{|l|r}\hline{\text { Balance Sheet as of December 31,2017 }} \\\hline \text { Cash } & \$ 10,000 \\\hline \text { Accounts receivable } & 5,000 \\\hline \text { Inventory } & 12,000 \\\hline \text { Property and equipment, net } & 20,000 \\\hline & \$ 47,000 \\\hline \text { Accounts payable } & \$ 10,000 \\\hline \text { Note payable, long-term } & 5,000 \\\hline \text { Contributed earnings } & 20,000 \\\hline \text { Retained earnings } & 12,000 \\\hline & \$ 47,000\end{array}

\begin{array}{l}\text { Income Statement for } 2018\\\begin{array}{l|r}\hline \text { Sales } & \$ 13,000 \\\hline \text { Cost of goods sold } & 3,000 \\\hline \text { Wage expense } & 3,000 \\\hline \text { Interest expense } & 1,000 \\\hline \text { Other expenses } & 500 \\\hline \text { Net income } & \$ 5,500\end{array}\end{array}

Additional Data for 2018:
Sales were $13,000; $8,000 in cash was received from customers.
Bought new land for cash,$10,000.
Sold other land for its book value of $5,000.
Paid $1,000 principal on the long-term note payable and $1,000 in interest.
Issued new shares of stock for $10,000 cash.
$1,000 of dividends were declared and paid.
Paid $5,500 on accounts payable.
No inventory purchases were made; other expenses were incurred on account.
All wages were paid in cash.
Other expenses were on account.
a.Prepare the statement of cash flows for the year ended December 31,2018 using the indirect method.
b.Prepare the statement of cash flows for the year ended December 31,2018 using the direct method.
c.Interpret the statement of cash flows by explaining the main sources and uses of cash during the year.
a.Balance Sheet

\begin{array}{llcc}\hline & 2008 & 2007 & \text { Change } & \text { Reason for change } \\ \text { Cash } & \$ 11,500& \$ 10,000& +1,500 & \text { Net increase in cash } \\ \text { Accounts receivable } &10,000& 5,000 & +5,000& \text { \$ 13,000 \text { (sales on account) - } \$ 8,000 }\\ \text { } &\text { }& \text { }& \text { }& \text { (collections)}\\ \text {Inventory } &9,000& 12,000& -3,000 & \text { Cost of goods sold }\\ \text { Property and equipment (net)} & 25,000& 20,000&\$ +5,000& \$ 10,000 \text { (land bought) - }\$ 5,000\text { (land Sold) }\\ \text { } &\$ 55,500& \$ 47,000 & \text { }& \text { }\\ \text { Accounts payable } &\$ 5,000& \$ 10,000 & -5,000& -\$ 5,500 \text { (accounts payable paid) } +\$ 500 \text { (other expenses on account) } \\ \text {Note payable, long Term } &4,000& 5,000& -1,000& \text { (principal paid) }\\ \text {Contributed capita. } &30,000&20,000&+10,000& \text { Issuance of stock for cash }\\ \text { Retained earnings } &16,000& 12,000& +4,500& \$ 5,500 \text{(net income)} - \$ 1,000 \text{(dividends)}\\ \text { } & \$ 55,500 &\$ 47,000 & \text { } & \text { } \\\end{array}

A Toy Store with a Calendar Year-End Is Likely to Have

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