Question

For the just completed year, Hanna Company had net income of $76,000. 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	$	55,000	$	84,000
Accounts receivable	$	160,000	$	188,000
Inventory	$	433,000	$	340,000
Prepaid expenses	$	12,000	$	13,000
Current liabilities:
Accounts payable	$	362,000	$	390,000
Accrued liabilities	$	7,500	$	12,500
Income taxes payable	$	34,000	$	27,000

The Accumulated Depreciation account had total credits of $46,000 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:

Statement of Cash Flows (Partial) - Hanna Company
Particulars	Details	Amount
Cash Flow from Operating Activities:
Net Income		$76,000.00
Adjustments to reconcile net income to cash flow from operating activities:
Depreciation	$46,000.00
Decrease in Accounts Receivables ($188,000 - $160,000)	$28,000.00
Increase in Inventory ($433,000 - $340,000)	-$93,000.00
Decrease in Prepaid Expense ($13,000 - $12,000)	$1,000.00
Decrease in Accounts payable ($390,000 - $362,000)	-$28,000.00
Decrease in Accrued liabilties ($12,500 - $7,500)	-$5,000.00
Increase in Income tax payable ($34,000 - $27,000)	$7,000.00
Total Adjustments		-$44,000.00
Net Cash Flow From Operating Activites		$32,000.00