# Question: This continues the previous Problem The president looked at the

This continues the previous Problem. The president looked at the indirect-method cash flow statement and suggested a way to help the cash flow problem. He suggested tripling the depreciation from \$30,000 to \$90,000 a year. That way, the cash flow will improve by \$60,000 annually. Explain why this reasoning is faulty.
In Problem, Wayzata Company saw its cash plummet by \$110,000 in 20X0. The company’s president wants an explanation of what caused the decrease in cash despite income of \$60,000. He has asked you to prepare both direct and indirect method statements of cash flows from operations for 20X0. You have discovered the following information:
• Sales, all on credit, were \$560,000.
• Accounts receivable increased by \$130,000.
• Cost of goods sold was \$390,000.
• Payments to suppliers were \$455,000.
• Accounts payable decreased by \$40,000.
• Inventory increased by \$25,000.
• Operating expenses were \$95,000 all paid in cash except for depreciation of \$30,000.
• Income tax expense was \$15,000; taxes payable decreased by \$5,000.

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