Problem $5-53$

CASH FLOW FROM OPERATIONS$-$COMPARISON OF INDIRECT AND DIRECT METHODS

The statement of cash flows for Riker Company $($prepared using the indirect method$)$

follows. Consider the following additional information:

$($a$)$ Sales for the year totaled $$812,350.$ Cost of goods sold was $$500,000.$ Operating ex$-$

penses were $$100,000.$ Interest expense was $$23,000.$ Income tax expense was $$40,430.$

$($b$)$ Of the decrease in accounts payable, $80\%$ is related to inventory purchases; the

remaining $20\%$ related to operating expenses.

$($c$)$ Depreciation and amortization are period costs; they do not enter into the com$-$

putation of cost of goods sold.

Riker Company

Statement of Cash Flows $($Indirect Method$)$

For the Year Ended December $31,2005$

Cash flows from operating octivities:

Net income

Adjustments:

Deprociation expense $................................$ $$65,000$

Loss on sale of mochine $.................................,7,400$

Goin on retirement of long$-$term dabl $..............................,(2,330)$

Increase in occounts receivable $......................................,(8,600)$

Decroose in inventory $.................................12,430$

Docrease in prepaid operating expenses $.......................1,680$

Docrease in occounts poryable $..................................,(2,400)$

Increose in interest parable

Net cash provided by operating octivities

Cosh flows from investing octivities:

Sole of mochine

Purchase of fixad ospets.

Not cosh used in imvesting activities

Cosh flows from finoncing octivitios:

Retirement of long$-$term debt

Papment of dividends.

$$(65,000)$

Not cosh used in fingaping octivition

Net decroas in couth

Cosh at beginning of your

Cash at ond of year

$ $68,850$

$500$

$2,500$

$\frac{86,180}{\text{\$}155,030}$

$$12,000$

$(78,000)$

$106,0001$

Instructions: Prepare the Operating Activitics section of the statement of cash flows for

Riker Company using the direct method.