16-3 16-06 The net income reported on the income statement for the current year was $334,100....

16-3 16-06 The net income reported on the income statement for the current year was $334,100. Depreciation recorded on equipment and a building amounted to $101,710 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	$90,280	$96,010
Accounts receivable (net)	111,780	118,690
Inventories	223,470	206,830
Prepaid expenses	12,870	14,850
Accounts payable (merchandise creditors)	96,330	103,900
Salaries payable	15,720	13,840

Required:

A.

Prepare the Cash Flows from Operating Activities section of the statement of cash flows, 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 had been used, would the net cash flow from operating activities have been the same?

A. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, 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.

Statement of Cash Flows (partial)

1	Cash flows from operating activities:
2
3	Adjustments to reconcile net income to net cash flow from operating activities:
4
5	Changes in current operating assets and liabilities:
6
7
8
9
10
11

Expert Solution

Answer A


Statement of Cash Flows (partial)


A. Cash Flows from Operating Activity
Net Income		$ 334,100.00
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation expense	$ 101,710.00
Changes in current operating assets and liabilities:
Decrease in Accounts receivables	$ 6,910.00
Decrease in Accounts payables	$ (7,570.00)
Decrease in prepaid expenses	$ 1,980.00
Increase in Inventory	$ (16,640.00)
Increase in salaries payable	$ 1,880.00
		$ 88,270.00
Net cash Provided by Operating activities		$ 422,370.00

Answer B

Yes, if direct method is used instead of indirect method, cash flow from operating activities would still be same.

It does not matter which method is used operating cash remains the same. Both methods have only the difference of presentation.

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