Question

The net income reported on the income statement for the current year was $318,700. Depreciation recorded on equipment and a building amounted to $93,980 for the year. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:

End of Year

Beginning of Year

Cash

$90,370

$95,280

Accounts receivable (net)

111,660

118,570

Inventories

232,780

203,250

Prepaid expenses

12,000

15,310

Accounts payable (merchandise creditors)

96,420

104,940

Salaries payable

15,310

13,420

Required:

A.

Prepare the Cash Flows from Operating Activities section of the statement of cash flows <javascript:void(0)>, using the indirect method. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. Use the minus sign to indicate cash outflows, cash payments, decreases in cash and for any adjustments, if required.

B.

If the direct method <javascript:void(0)> had been used, would the net cash flow from operating activities have been the same?

Answer 1

Answer-A)-

STATEMENT OF CASH FLOWS PARTIAL (USING INDIRECT METHOD)
FOR THE YEAR ENDED
Particulars		Amount
		$
Cash flow from operating activities
Net Income		318700
Adjustments to reconcile net income to net cash provided by operating activities
Adjustment for non cash effects
Depreciation		93980
Change in operating assets & liabilities
Increase in inventory		-29530
Decrease in accounts payable		-8520
Decrease in accounts receivable		6910
Decrease in prepaid expenses		3310
Increase in salaries payable		1890
Net cash flow from operating activities		386740

B)- If the direct method had been used, would the net cash flow from operating activities have been the same = Yes.

Explanation- Whether direct method or indirect method are used, the net cash flow from operating activities would be same in either method.