Operating Activities Section Using the Indirect Method. The following income statement 19. and current sections of the balance sheet are for Donzi, Inc. Donzi, Inc. Income Statement for the Year Ended December 31, 2012 $650,000 410,000 $240,000 Sales Cost of goods sald Gross margin Selling and administrative expenses Depreciation expense Operating income Gain on sale of equipment 89,000 21,000 $1 30,000 1,600 $131,600 Inco e before taxes Income tax expense 46,600 $ 85,000 Net income December 31 2012 2011 Current assets Cash Accounts receivable Merchandise inventory Prepaid expenses $ 40,000 10,000 $ 32,000 8,000 16,000 2,700 12,500 4,000 Current liabilities Accounts payable Income tax payable 4,500 2,200 3,700 1,800 Required: Using the indirect method, prepare the operating activities section of the statement of cash flows for Donzi, Inc., for the year ended December 31, 2012. Use the format presented in Figure 12.5 "Operating Activities Section of Statement of Cash Flows (Home Store, Inc.)" Figure 12.5 Operating Activities Section of Statement of Cash Flows (Home Store, Inc.) Cash flows from operating activities Net income $124,000 Adjustments (to comnvert net income to cash provided by operating activities) 1. Add back depreciation expense 2. Add back loss on sale of equipment 3. Increase in accounts receivable 3. Increase in merchandise inventory 3. Decrease in prepaid expenses 3. Increase in accounts payable 3. Decrease in income tax payable Cash provided by operating activities 24,000 6,000 (60,000) (66,000) 2,000 1,000 (9,000) S 22,000 The company received $22,000 in cash for the year related to daily operations of the business. For current assets, the adjustment is in the opposite direction of the change in the account. For current liabilities the adjustment is in the same direction as the change in the account