Question

The income statement and a partial balance sheet for Jefferson Company is presented below. Prepare the...

The income statement and a partial balance sheet for Jefferson Company is presented below. Prepare the operating activities section of the statement of cash flows using the indirect method.

Jefferson Company

                                                           Income Statement

                                      For the Year Ended December 31, 2006

Sales                                                                                                                              $500,000

Cost of goods sold                                                                                                  390,000

Gross profit                                                                                                                $110,000

Operating expenses:

        Salaries                                                                          $70,000

        Depreciation expense                                                 20,000

        Miscellaneous                                                             10,000                        100,000

Net income                                                                                                                   $10,000

                                                         Jefferson Company

                                                        Partial Balance Sheet

                                                          December 31, 20X6

                                                                                         12/31/2006                    12/31/2005

Cash                                                                                        $80,000                          $65,000

Accounts receivable (net)                                                  57,000                            50,000

Inventories                                                                           102,000                            86,000

Prepaid expenses                                                                    4,500                               4,000

Accounts payable (merchandise)                                   58,000                            51,000

Salaries payable                                                                      7,500                               6,000

Business   Accounting   
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Answer #1

Jefferson Company

Statement of cash flow (Indirect method)

For the year ended December 31 ,2006
Cash flow from Operating activities
Net Income 10000
Adjustment to reconcile net income to cash flow from operating activity
Depreciation expense 20000
Increase in accounts receivable [57000-50000] -7000
Increase in inventories [102000-86000] -16000
Increase in prepaid expense [4500-4000] -500
Increase in accounts payable [58000-51000] 7000
Increase in salaries payable [7500-6000] 1500
5000
Net cash flow from operating activities 15000
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