Question

Portions of the financial statements for a company are provided below.

Income Statement For the year ended December 31, Year 2
Net sales				$	1,850,000
Expenses:
Cost of goods sold	$	1,070,000
Operating expenses		580,000
Depreciation expense		52,000
Income tax expense		42,000
Total expenses					1,744,000
Net income				$	106,000

Selected Balance Sheet Data December 31
	Year 2			Year 1			Increase (I) or Decrease (D)
Cash	$	104,000		$	86,000		$	18,000		(I)
Accounts receivable		45,200			50,000			4,800		(D)
Inventory		77,000			56,000			21,000		(I)
Prepaid rent		3,200			5,400			2,200		(D)
Accounts payable		47,000			38,000			9,000		(I)
Income tax payable		5,200			11,000			5,800		(D)

Prepare the operating activities section of the statement of cash flows for the company using the indirect method.

Answer 1

Ans: Cash flow Statement using operating Activities

Particulars	Amount	Amount($)
Cash flow from Operating Activities
Net income		106,000
Add: Income tax expense	42,000
Interest Expense	0
Add: Adjustment for non cash effects
Depreciation Expense	52,000	94,000
Net profit before working capital changes		200,000
Add: Increase in current liability and decrease in current assets
Accounts payable	9,000
Accounts receivable	4,800
Prepaid rent	2,200
Less: Increase in current assets and decrease in liability
Inventory	(21,000)	(5,000)
Cash generated from operations		195,000
Less: income tax (11,000+42,000-5,200)		(47,800)
Cash flow from operating activities		147,200