Question

You are provided with the following balance sheet information and summarized income statement for Katrime Ltd.:

.:.
All sales are credit sales. Accounts payable pertains exclusively to the purchase of inventory. Other expenses were fully paid in cash during the year.

Required:
a. Prepare Katrime’s cash from operations section of the cash flow statement using the indirect method.
b. Calculate these amounts:
i. Cash collected from customers
ii. Cash paid to suppliers of inventory
iii. Cash paid to employees
Use this information to prepare Katrime’s cash from operations section of the cash flow statement using the direct method.
c. Do you think the direct method or indirect method provides more useful information to stakeholders? Explain. What information is available when the direct method is used that isn’t available when the indirect method is used?
d. Explain the difference between net income and cash from operations. Why did
Katrime have a profit on its income statement but negative cash from operations?
e. What are the implications of showing a profit on the income statement but negative cash from operations?



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  • CreatedFebruary 26, 2015
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