prepare the operating section of the statement of cash flows under the indirect meth 614307

Preparing the four financial statements

The December 31, 2011, balance sheet for Morrison Home Services is summarized below.

Assets		Liabilities and Shareholders” Equity
Cash	$10,000	liabilities	$ 6000
Receivables	4,000	Contributed capital	10000
Long-term assets	10,000	Retained earnings	8000
		Total liabilities and
Total assets	$24000	shareholders” equity	$24000

During January of 2012, the following transactions were entered into:

1. Services were performed for $7,000 cash.
2. $3,000 cash was received from customers on outstanding accounts receivable.
3. $3,000 cash was paid for outstanding liabilities.
4. Long-term assets were purchased in exchange for a $6,000 note payable.
5. Expenses of $4,000 were paid in cash.
6. A dividend of $800 was issued to the owners.

REQUIRED:

a. Provide a journal entry for each transaction.

b. Treat each transaction independently and describe how each would affect the ratios of current assets divided by current liabilities, net income divided by shareholders” equity, and total liabilities divided by shareholders” equity; and Morrison”s current ratio, return on equity, and debt/equity ratio, respectively.

c. Prepare the income statement, statement of shareholders” equity, the January 31 balance sheet, and the statement of cash flows (direct method) for January.

d. (Appendix 4A) Prepare the operating section of the statement of cash flows under the indirect method.