Direct and Indirect Cash Flow Models

Complete the following exercise. Fill in the Excel spreadsheet titled Cash Flows provided via the link at the bottom of the page to

provide your answers to parts a and b. Then paste the Excel data into a Word document on which you can also write the answer to part c.

Label each exercise or problem clearly. Use APA formatting and citation if needed.

The Carpet Company's 2009 and 2010 balance sheets included the following items:

December 31

2010 2009

Debits

Cash $10,500 $ 4,000

Accounts receivable 8,000 9,000

Merchandise inventory 21,000 18,000

Equipment 18,000 15,000

Totals $57,500 $46,000

Credits

Accumulated depreciation, equipment $4,000 $3,000

Accounts payable 7,000 5,000

Taxes payable 1,000 2,000

Dividends payable 1,500 0

Common stock, $10 par value 27,000 25,000

Contributed capital in excess of par, common stock 6,000 5,000

Retained earnings 11,000 6,000

Totals $57,500 $46,000

The Carpet Company's income statement was as follows:

CARPET COMPANY

Income Statement

For the Year Ended December 31, 2010

Sales $61,000Cost of goods sold $40,000

Wages and other operating expenses 6,300

Income taxes expense 4,200

Depreciation expense 1,500 52,000

Net income 9,000

Additional information includes the following:

Equipment costing $3,500 was purchased during the year.

Fully depreciated equipment that cost $500 was discarded and its cost and accumulated depreciation were removed from the accounts.

Two hundred shares of stock were sold and issued at $15 per share.

The company declared $4,000 of cash dividends and paid $2,500.

Required:

Prepare the statement of cash flow under the direct method for the year ended December 31, 2010.

Prepare the statement of cash flow under the indirect method for the year ended December 31, 2010.

Provide a statement between 200 and 300 words in length for senior management. The topic is the status of the company based on

cash flow.