PROBLEM 13.4A

Reporting Operating

Cash Flows by the

Direct MethodPLO3

C

DR

LO8

TREECE, INC.

INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2011

Revenue:

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,850,000

Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,000

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000

Gain on sales of marketable securities . . . . . . . . . . . . . . . . . . . 4,000

Total revenue and gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,028,000

Costs and expenses:

Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,550,000

Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 980,000

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185,000

Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000

Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,805,000

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 223,000

End of Beginning

Year of Year

Selected account balances:

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 650,000 $ 720,000

Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 6,000

Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000 765,000

Short-term prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 15,000

Accounts payable (merchandise suppliers) . . . . . . . . . . . . . . . . 570,000 562,000

Accrued operating expenses payable . . . . . . . . . . . . . . . . . . . . 65,000 94,000

Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,000 12,000

Accrued income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . 22,000 35,000

Problem 13.5A

Using the information presented in Problem 13.4A, prepare a partial statement of cash flows for

the current year, showing the computation of net cash flows from operating activities by the indi-

rect method. Explain why the decline in accounts receivable over the year was added to net income

in computing the cash flows from operating activities.