Exercise 13-2 Net Cash Provided by Operating Activities [LO13-2] For the just completed year, Hanna Company...

Exercise 13-2 Net Cash Provided by Operating Activities [LO13-2]

For the just completed year, Hanna Company had net income of $35,000. 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	$	30,000	$	40,000
Accounts receivable	$	125,000	$	106,000
Inventory	$	213,000	$	180,000
Prepaid expenses	$	6,000	$	7,000
Current liabilities:
Accounts payable	$	210,000	$	195,000
Accrued liabilities	$	4,000	$	6,000
Income taxes payable	$	34,000	$	30,000

The Accumulated Depreciation account had total credits of $20,000 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 outflows as negative amounts.)

Expert Solution

Ans.	Particulars	Amount	Amount
	Cash flow from operating activities:
	Net income		$35,000
	Adjustments to reconcile Net income to Net cash
	provided by Operating Activities:
	Add: Depreciation expense	$20,000
	Less: Increase in accounts receivables	-$19,000
	Less: Increase in inventory	-$33,000
	Add: Decrease in prepaid expenses	$1,000
	Add: Increase in accounts payable	$15,000
	Less: Decrease in accrued liabilities	-$2,000
	Add: Increase in income tax payable	$4,000	-$14,000
	Net cash from operating activities		$21,000

	*Calculations for Change in balance:

	Accounts receivable = $125,000 - $106,000 = $19,000 (increase)
	Inventory = $213,000 - $180,000 = $33,000 (increase)
	Prepaid expenses = $6,000 - $7,000 = -$1,000 (decrease)
	Accounts payable = $210,000 - $195,000 = $15,000 (increase)
	Accrued liabilities = $4,000 - $6,000 = $2,000 (decrease)
	Income tax payable = $34,000 - $30,000 = $4,000 (increase)

	*Decrease in current liabilities and Increase in current assets other than cash is deducted from Net Income.
	*Increase in current liabilities and Decrease in current assets other than cash is added to Net Income.
	*Non cash & Non operating expenses are added to Net income.
	*Non cash & Non operating income are deducted from Net income.

ekkarill92 answered 1 year ago

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