Question

For the just completed year, Hanna Company had net income of $78,500. Balances in the company’s current asset and current liability accounts at the beginning and end of the year were as follows: December 31 End of Year Beginning of Year Current assets: Cash and cash equivalents $ 62,000 $ 85,000 Accounts receivable $ 158,000 $ 182,000 Inventory $ 439,000 $ 361,000 Prepaid expenses $ 12,000 $ 14,000 Current liabilities: Accounts payable $ 364,000 $ 398,000 Accrued liabilities $ 8,500 $ 12,500 Income taxes payable $ 34,000 $ 30,000 The Accumulated Depreciation account had total credits of $42,000 during the year. Hanna Company did not record any gains or losses during the year. Required: Using the indirect method, determine the net cash provided by operating activities for the year. (List any deduction in cash and cash outflows as negative amounts.)

Answer 1

Solution:

Hanna Company

Statement of cash flows

Indirect method

Details	Amount($)	Amount($)
Net income		$78,500
Add:
Depreciation	$42,000
Decrease in prepaid expenses	$2,000
Increase in accounts payable	$34,000
Increase in income taxes payable	$4,000	$82,000
		$160,500
Less:
Increase in accounts receivable	($24,000)
Increase in inventory	($78,000)
Decrease in accrued liabilities	($4,000)	($106,000)
Net cash provided by operating activities		$54,500