# Question: Wayzata Company saw its cash plummet by 110 000 in 20X0

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.
1. Prepare a statement of cash flows from operating activities using the direct method.
2. Prepare a statement of cash flows from operating activities using the indirect method.
3. Explain why cash decreased by \$110,000 when net income was a positive \$60,000.

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