Question

Question #3:   H&M, Inc. reported the following data:

Net income	$200,000
Depreciation expense	25,000
Loss on disposal of equipment	30,000
Increase in accounts receivable	20,000
Decrease in accounts payable	(8,000)

Requirement: Prepare the cash flows for operating activities under the indirect method as it would appear on the statement of cash flows.

Question #4:        Explain the difference between static and flexible budgets. Provide a detailed example of how companies can use flexible budgets for decision making.

Answer 1

Solution: 3
	Statement of Cash Flows - Indirect Approach
		Amount in $	Amount in $
	Net Cash flows from operating activities
	Net income		$       2,00,000
	Adjustments for reconcile the net income to:
	Loss on disposal of plant assets
	Depreciation Expenses	$              25,000
	Loss on disposal of Equipment	$              30,000
	Increase in account receivable	$             -20,000
	Decrease in accounts Payable	$                 8,000
			$           43,000
	Net cash from operating activities		$       2,43,000
Solution: 4
	Static budgets are prepared at beginning of the year and this budget once made than cannot
	change in the whole year.
	Flexible budget is the budget prepared for comparing the actual Budget. Flexible budgets
	are changed every time when thre is change in volume and activity.
	Actual production and budgeted production are not same so for actual budget comparison
	we need flexible budget.
	Lest assume the static budget is made for 10,000 units but the actual production is 12,000 unit
	now we can prepare the flexible budget on the basis of 12,000 units of prodcution.