Question

Wildhorse Co.’s income statement contained the condensed information below. Wildhorse Co. Income Statement For the Year Ended December 31, 2022 Service revenue $1,358,000 Operating expenses, excluding depreciation $859,600 Depreciation expense 77,000 Loss on disposal of plant assets 22,400 959,000 Income before income taxes 399,000 Income tax expense 78,400 Net income $320,600 Wildhorse Co.’s balance sheets contained the following comparative data at December 31. 2022 2021 Accounts receivable $98,000 $84,000 Accounts payable 57,400 44,800 Income taxes payable 18,200 9,800 Accounts payable pertain to operating expenses. Prepare the operating activities section of the statement of cash flows using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Answer 1

Solution

Wildhorse Co.
Cash Flow Statement
For year ended December 31 2022
A. Cash Flows from Operating Activity
Net Income		$        320,600.00
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation expense	$       77,000.00
Loss on disposal of plant asset	$       22,400.00
Increase in accounts receivables	$     (14,000.00)
Increase in Accounts payable	$       12,600.00
Increase in income tax payable	$          8,400.00
		$        106,400.00
Net cash flow from Operating activities		$        427,000.00

.General notes for cash flow
Cash is increased when Current liability increase or Current asset Decrease.
Cash is Decreased when Current liability Decrease or Current asset Increase.
Depreciation or loss on sale of any asset is a non cash expense hence it will be added to net income to get operating cash
Profit on sale of asset or investment is a non cash profit and hence will be deducted from operating income.