Logan Company is a merchandiser that prepared the statement of cash flows and income statement provided below:

Logan Company
Income Statement
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,120
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,890
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,230
Selling and administrative expenses . . . . . . . . . . . . . . 835
Net operating income . . . . . . . . . . . . . . . . . . . . . . . . . . 395
Nonoperating items: Loss on sale of equipment . . . . . . (3)
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 175
Required:
Assume that you have been asked to teach a workshop to the employees within Logan Company€™s Marketing Department. The purpose of your workshop is to explain how the statement of cash flows differs from the income statement. Your audience is expecting you to explain the logic underlying each number included in the statement of cash flows. Prepare a memo that explains the format of the statement of cash flows and the rationale for each number included in Logan€™s statement of cashflows.

Transcribed Image Text:

Logan Company Statement of Cash Flows-Indirect Method Operating Activities $175 Adjustments to convert net income to cash basis Depreciation .. $108 21 39 (50) Decrease in accounts payable... Decrease in accrued liabilities. Increase in income taxes payable . . . . . . . . . .. 120 295 Net cash provided by operating activities......... .. Investing Activities Additions to property, plant, and equipment . . .. Proceeds from sale of equipment . . . . . Net cash used in investing activities. . .. . .. Financing Activities (110) (101) (31) 4 (35) Net cash used in financing activities . . . Net increase in cash and cash equivalents. .. Cash and cash equivalents, beginning balance....... Cash and cash equivalents, ending balance. . . (62) 132 70 $202