Question

Portions of the financial statements for a company are provided below. Income Statement For the year ended December 31, Year 2 Net sales $ 1,600,000 Expenses: Cost of goods sold $ 970,000 Operating expenses 480,000 Depreciation expense 42,000 Income tax expense 32,000 Total expenses 1,524,000 Net income $ 76,000 Selected Balance Sheet Data December 31 Year 2 Year 1 Increase (I) or Decrease (D) Cash $ 94,000 $ 81,000 $ 13,000 (I) Accounts receivable 46,800 53,000 6,200 (D) Inventory 67,000 51,000 16,000 (I) Prepaid rent 2,200 3,400 1,200 (D) Accounts payable 37,000 33,000 4,000 (I) Income tax payable 4,200 6,000 1,800 (D) Required: Prepare the operating activities section of the statement of cash flows for the company using the indirect method.

Answer 1

Answer:

Explanation:

The preparation of the Cash Flows from Operating Activities—Indirect Method is shown below:

Cash flow from Operating activities - Indirect method

Net income $76,000

Adjustment made:

Add : Depreciation expense $42,000

Add: Decrease in accounts receivable $6,200

Less: Increase in inventory -$16,000

Add: Increase in accounts payable $4,000

Less: Decrease in income tax payable -$1,800

Add: Decrease in prepaid rent $1,200

Total of Adjustments $35,600

Net Cash flow from Operating activities              $111,600