Presented below is the income statement of Gregg, Inc.: Sales $380,000 Cost of g
ID: 2600017 • Letter: P
Question
Presented below is the income statement of Gregg, Inc.:
Sales $380,000
Cost of goods sold 225,000
Gross profit $155,000
Operating expenses 95,000
Income before income taxes Income taxes 60,000
Income taxes 24,000
Net income $ 36,000
In addition, the following information related to net changes in working capital is presented:
Debit Credit
Cash $12,000
Trade accounts receivable (net) 10,000
Inventories $ 19,400
Salaries payable (operating expenses) 8,000
Trade accounts payable 9,000
Income tax payable 3,000
The company also indicates that depreciation expense for the year was $13,700 (included in operating expenses) and that the deferred tax liability account increased $2,600.
Prepare a schedule computing the net cash flow from operating activities that would be shown on a statement of cash flows:
a. Using the indirect method
b. Using the direct method.
Explanation / Answer
Solution:-
a. Using the indirect method:-
b. Using the direct method:-
Please Rate or comment if you have any doubt regarding this solution.
Gregg, Inc. Statement of Cash Flows (Partial) (Indirect Method) Cash flows from operating activities Net income 36,000 Adjustments to reconcile net income to net cash provided by operating activities: Increase in trade accounts receivable (10,000) Decrease in inventories 19,400 Decrease in salaries payable (operating expenses) (8,000) Increase in trade accounts payable 9,000 Decrease in income taxes payable (3,000) Depreciation expense 13,700 Increase in deferred tax liability 2,600 23,700 Net cash provided by operating activities 59,700