Cash Flows from Operating ActivitiesIndirect Method The net income reported on the income statement for the current
Question:
Cash Flows from Operating Activities—Indirect Method
The net income reported on the income statement for the current year was $139,400. Depreciation recorded on store equipment for the year amounted to $23,000. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:
| End of Year | Beginning of Year | |||
| Cash | $56,460 | $51,940 | ||
| Accounts receivable (net) | 40,480 | 38,380 | ||
| Merchandise inventory | 55,270 | 58,430 | ||
| Prepaid expenses | 6,210 | 4,930 | ||
| Accounts payable (merchandise creditors) | 52,900 | 49,140 | ||
| Wages payable | 28,910 | 32,100 | ||
a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method. Use the minus sign to indicate cash outflows, cash payments, decreases in cash, or any negative adjustments.
| Statement of Cash Flows (partial) | ||
| Cash flows from operating activities: | ||
| Net income | $ | |
| Adjustments to reconcile net income to net cash flow from operating activities: | ||
| Depreciation | ||
| Changes in current operating assets and liabilities: | ||
| Increase in accounts receivable | ||
| Decrease in merchandise inventory | ||
| Increase in prepaid expenses | ||
| Increase in accounts payable | ||
| Decrease in wages payable | ||
| Net cash flow from operating activities | $ | |
b. Cash flows from operating activities differs from net income because it does not use the cash basis of accounting. For example revenues are recorded on the income statement when cash is received .
Expert Answer:
Statement of Cash Flows partial Cash flows from operating activities Net income139400 Adjustments to ... View the full answer
