Please show work The net income reported on an income statement for the current
ID: 2500334 • Letter: P
Question
Please show work
The net income reported on an income statement for the current year was $58,000. Depreciation recorded on fixed assets for the year was $24,000. Balances of the current asset and current liability accounts at the end and beginning of the year are listed below. Prepare the cash flows from operating activities section of a statement of cash flows using the indirect method.
End
Beginning
Cash
$65,000
$ 70,000
Accounts receivable (net)
70,000
63,000
Inventories
85,000
102,000
Prepaid expenses
4,000
4,500
Accounts payable
(merchandise creditors)
50,000
58,000
Cash dividends payable
4,500
6,500
Salaries payable
6,000
7,500
End
Beginning
Cash
$65,000
$ 70,000
Accounts receivable (net)
70,000
63,000
Inventories
85,000
102,000
Prepaid expenses
4,000
4,500
Accounts payable
(merchandise creditors)
50,000
58,000
Cash dividends payable
4,500
6,500
Salaries payable
6,000
7,500
Explanation / Answer
Cash flows from operating activities using indirect method
Cash dividends payable, though a short term liability, has not been considered as it is an item of financing activity.
$ $ Net income 58,000 Adjustment for non cash item Add Depreciation 24,000 Operating profit before adjusting for working capital changes 82,000 Less increase in accounts receivable (7,000) Add decrease in inventory 17,000 Add decrease in prepaid expenses 500 Less decrease in accounts payable (8,000) Less decrease in salaries payable (1,500) 1,000 Cash flows from operating activities 83,000