Question

Direct and Indirect Methods

Dauve Company reported the following condensed income statement for 2016:

Sales				$100,000
Cost of goods sold				(58,000)
Gross profit				$42,000
Operating expenses:
Depreciation expense		$8,000
Salaries expense		12,000		(20,000)
Income before income taxes				$22,000
Income tax expense				(6,600)
Net income				$15,400

During 2016, the following changes occurred in the company's current assets and current liabilities:

		Increase (Decrease)
Cash		$3,700
Accounts receivable		(5,500)
Inventories		8,900
Accounts payable (purchases)		(4,600)
Salaries payable		2,800

Required:

1. By visual inspection, prepare the net cash flow from the operating activities section of Dauve's 2016 statement of cash flows using the indirect method. Use a minus sign to indicate cash outflows or decreases in cash.

Required:

1. By visual inspection, prepare the net cash flow from the operating activities section of Dauve's 2016 statement of cash flows using the indirect method. Use a minus sign to indicate cash outflows or decreases in cash.

DAUVE COMPANY
Statement of Cash Flows (Partial)
For Year Ended December 31, 2016
Operating Activities:
Net income	$
Adjustment for noncash income items:
Add: Depreciation expense
Adjustments for cash flow effects from working capital items:
Decrease in accounts receivable
Increase in inventory
Decrease in accounts payable
Increase in salaries payable
Net cash provided by operating activities		$

2. By visual inspection, prepare the net cash flow from the operating activities section of Dauve's 2016 statement of cash flows using the direct method. Use a minus sign to indicate cash outflows, a decrease in cash or cash payments.

DAUVE COMPANY
Statement of Cash Flows (Partial)
For Year Ended December 31, 2016
Operating Activities:
Cash Inflows:
Cash received from customers	$
Cash inflows from operating activities		$
Cash Outflows:
Cash paid to suppliers	$
Cash paid to employees
Cash paid for income taxes
Cash outflows for operating activities
Net cash provided by operating activities		$

Answer 1

Solution:

DAUVE COMPANY
Statement of Cash Flows (Partial)
For Year Ended December 31, 2016
Operating Activities:
Net income	$15,400
Adjustment for noncash income items:
Add: Depreciation expense	$8,000
Adjustments for cash flow effects from working capital items:
(+) Decrease in accounts receivable	$5,500
(-) Increase in inventory	($8,900)
(-) Decrease in accounts payable	($4,600)
(+) Increase in salaries payable	$2,800
Net cash provided by operating activities		$18,200
DAUVE COMPANY
Statement of Cash Flows (Partial)
For Year Ended December 31, 2016
Operating Activities:
Cash Inflows:
Cash received from customers (Sales $100,000 + Decrease in Accounts Receivable $5,500)	105500
Cash inflows from operating activities		105500
Cash Outflows:
Cash paid to suppliers (Refer Note 1)	$71,500
Cash paid to employees (Salaries exp 12000 - Increase in Salaries Payable 2,800)	$9,200
Cash paid for income taxes	$6,600
Cash outflows for operating activities		$87,300
Net cash provided by operating activities		$18,200

Note 1

	$$
Cost of Goods Sold	$58,000
Plus: Increase in Inventory	$8,900
Purchases made during the year	$66,900
Plus: Decrease in Accounts Payable	$4,600
Cash Paid to supplier	$71,500

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