Question

For the just completed year, Hanna Company had net income of $144,000. 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	$	62,000	$	81,000
Accounts receivable	$	168,000	$	190,000
Inventory	$	432,000	$	352,000
Prepaid expenses	$	12,000	$	14,000
Current liabilities:
Accounts payable	$	370,000	$	396,000
Accrued liabilities	$	8,000	$	12,400
Income taxes payable	$	33,800	$	27,000

The Accumulated Depreciation account had total credits of $54,000 during the year. Hanna Company did not record any gains or losses during the year.

The company’s income statement for the year appears below:

Sales	$	1,070,000
Cost of goods sold		575,000
Gross margin		495,000
Selling and administrative expenses		310,000
Income before taxes		185,000
Income taxes		41,000
Net income	$	144,000

Required:

Using the direct method, convert the company's income statement to a cash basis. (Adjustment amounts that are to be deducted should be indicated with a minus sign.)

Hanna Company
Direct Method of Determining the Net Cash Flows from Operating Activities
Adjustments to a cash basis:
Adjustments to a cash basis:
Selling and administrative expenses
Adjustments to a cash basis:
Income taxes
Adjustments to a cash basis:

Answer 1