Question

For the just completed year, Hanna Company had net income of $70,500. 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	$	59,000	$	76,000
Accounts receivable	$	168,000	$	196,000
Inventory	$	451,000	$	367,000
Prepaid expenses	$	11,500	$	13,500
Current liabilities:
Accounts payable	$	352,000	$	384,000
Accrued liabilities	$	7,500	$	11,500
Income taxes payable	$	33,000	$	30,000

The Accumulated Depreciation account had total credits of $52,000 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

STATEMENT OF CASH FLOWS [INDIRECT METHOD]
Cash flows from operating activities:
Net income		$      70,500
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation	$      52,000
Decrease in receivables [196000-168000]	$      28,000
Increase in inventory [451000-367000]	$     -84,000
Decrease in prepaid expenses [13500-11500]	$ 2,000
Decrease in accounts payable [384000-352000]	$     -32,000
Decrease in accrued liabilities [11500-7500]	$       -4,000
Increase in income taxes payable [33000-30000]	$ 3,000	$     -35,000
Net cash provided by operating activities		$      35,500