The following account balances are for the noncash current assets and current li
ID: 2349114 • Letter: T
Question
The following account balances are for the noncash current assets and current liabilities of Sam's surfboard shop for 2008 and 20092008 2009
Accounts Receivable $8000 $20000
Inventory 55000 70000
Prepaid insurance 3000 1000
Accounts Payable 14000 22000
Salaries Payable 4000 2000
In addition, the income statement for 2009 is as follows:
Sales Revenue $800000
cost of goods sold 380000
Gross profit $420000
General and administrative expenses 60000
Depreciation expenses 40000
Total operating expenses $100000
Income before interest and taxes $320000
Interest expense 25000
Income before tax $295000
Income tax expense 88000
Net income $207000
Prepare the operating activities section of the statement of cash flows using the indirect method.
Explanation / Answer
net profit before tax 295000 add:depreciation=40000 add:interest=25000 operating profit before working capital changes=295000+40000+25000=360000 less:increase in debtors (12000) less:increase in inventory (15000) add:decrease in prepaid insurance 2000 add:increase in accounts payable 8000 less:decrease in salaries payable (2000) cash generated from operations:360000-12000-15000+2000+8000-2000=341000 less:income tax paid 88000 cash flow from operating activities 341000-88000=253000