Ch 16-3 Exercises and Problems EX.16-02.ALGO EX.16-03 EX.16-04 EX.16-05.ALGO EX.
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Ch 16-3 Exercises and Problems
EX.16-02.ALGO
EX.16-03
EX.16-04
EX.16-05.ALGO
EX.16-06.BLANKSHEET.ALGO
EX.16-11.ALGO
EX.16-17.ALGO
PR.16-01.ALGO
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Cash Flows from Operating Activities—Indirect Method
The net income reported on the income statement for the current year was $123,600. Depreciation recorded on store equipment for the year amounted to $20,400. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:
a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.
b. Cash flows from operating activities differs from net income because it does not use the of accounting. For example revenues are recorded on the income statement when .
End of Year Beginning of Year Cash $49,810 $45,830 Accounts receivable (net) 35,710 33,870 Merchandise inventory 48,760 51,560 Prepaid expenses 5,480 4,350 Accounts payable (merchandise creditors) 46,670 43,360 Wages payable 25,500 28,320Explanation / Answer
Solution A:
Statement of Cash Flows (partial)
1
Cash flows from operating activities:
2
Net Income
$123,600
3
Adjustments to reconcile net income to net cash flow from operating activities:
4
Depreciation (on equipment)
$ 20,400
5
Changes in current operating assets and liabilities:
6
Increase in Accounts receivable (net)
-$1,840
7
Increase in Prepaid expenses
- $ 1,130
8
Decrease in wages payable
-$ 2,820
9
Decrease in Merchandise Inventories
$ 2,800
10
Increase in
Accounts payable (merchandise creditors)
$3,310
$ 20,720
11
Cash Flows from Operating Activities
$ 144,320
Answer (b). Cash flows from operating activities differ from net income because it does not use the accrual basis of accounting. For example revenues are recorded on the income statement when they are earned.
Statement of Cash Flows (partial)