Refer to the income statement and comparative balance sheets for Wolff Company presented in P4-46.

REQUIRED:

a. Compute Wolff Company's cash flow from operating activities using the direct method. Use the format illustrated in Exhibit 4.5 in the chapter.

Exhibit 4.5: 

b. What can we learn from the direct method that may not be readily apparent when reviewing a cash flow statement prepared using the indirect method?

Data from P4-46:

Transcribed Image Text:

EXHIBIT 4.5 Adjustments to Convert Income Statement Items to Cash Flows from Operating Activities Operating Depreciation, Dividend and expenses Net Sales Cost of Interest Income tax Interest income expense + Gains - Losses income revenue goods sold expense екреnse Adjustments: Add back depreciation Depreciation expense expense Subtract (add) nonoperating gains (losses) Gains Losses Subtract the change in aperating, assets (operating imvestments) Change in accounts Change in inventory Change in related prepaid Change in dividend receivable and interest receivable expenses Add the change im operating habilities Change in unearned Change in accounts Change in related Change in interest payable Change in income tax payable (operating financing) payable accrued liabilities revenue Aeceipts trom customers Receipts from Payments for_ Payments for merchandise Payments for interest o - Payments for income tax Cash from expenses + dividends and interest + 0 - operations