Question

Cash Flow from Operating Activities (Indirect Method)
The Lincoln Company owns no plant assets and had the following income statement for the year:

Sales revenue		$1,050,000
Cost of goods sold	$658,000
Wages expense	154,000
Rent expense	58,800
Insurance expense	21,000	891,800
Net income		$158,200

Additional information about the company includes:

	End of Year	Beginning of Year
Accounts receivable	$75,600	$68,600
Inventory	84,000	92,400
Prepaid insurance	11,200	9,800
Accounts payable	30,800	25,200
Wages payable	12,600	15,400

Use the preceding information to calculate the cash flow from operating activities using the indirect method.

Use negative signs with cash outflow answers.

Cash Flow from Operating Activities
	Net Income		Answer
	Add (deduct) items to convert net income to cash basis
	Accounts Receivable	Increase	Answer
	Inventory	Decrease	Answer
	Prepaid Insurance	Increase	Answer
	Accounts Payable	Increase	Answer
	Wages Payable	Decrease	Answer
	Cash Provided by Operating Activities		Answer

Answer 1

LINCOLN COMPANY
STATEMENT OF CASH FLOWS PARTIAL (USING INDIRECT METHOD)
FOR THE YEAR ENDED
Particulars		Amount
		$
Cash flow from operating activities
Net Income		158200
Adjustments to reconcile net income to net cash provided by operating activities
Adjustment for non cash effects
Change in operating assets & liabilities
Increase in accounts receivable		-7000
Decrease in inventory		8400
Increase in prepaid insurance		-1400
Increase in accounts payable		5600
Decrease in wages payable		-2800
Net cash flow from operating activities		161000