Question

QS 12-6 Indirect: Computing cash from operations LO P2

MOSS COMPANY Selected Balance Sheet Information December 31, 2019 and 2018
	2019			2018
Current assets
Cash	$	88,650		$	30,800
Accounts receivable		29,000			40,000
Inventory		64,000			54,900
Current liabilities
Accounts payable		38,400			29,700
Income taxes payable		2,450			3,000

  

MOSS COMPANY Income Statement For Year Ended December 31, 2019
Sales				$	555,000
Cost of goods sold					347,600
Gross profit					207,400
Operating expenses
Depreciation expense	$	44,000
Other expenses		126,000			170,000
Income before taxes					37,400
Income taxes expense					13,600
Net income				$	23,800

Use the information above to calculate cash flows from operating activities using the indirect method. (Amounts to be deducted should be indicated by a minus sign.)
  

Cash flows from operating activities: Adjustments to reconcile net income to operating cash flow 0 $0

Answer 1

Cash Flows from Operating Activities (using Indirect Method)

Particulars	Amounts $	Amounts $
Net Income before Tax & Other Items (Refer Note 1)		$ 37,400
Add : Depreciation		$ 44,000
Operating Profit before Working Capital Changes (A)		$ 81,400
Decrease in Accounts receivable	$11,000
Increase in Inventory	- $ 9,100
Increase in Accounts Payable	$8,700
Working Capital Changes (B)		$ 10,600
Cash generated from operations ( A + B )		$ 92,000
Less : Income Taxes Paid (Refer Note 2)		- $14,150
Net Cash from Operating Activities		$ 77,850

Adujustmets to reconcile net income to Operating Cash Flow

Note 1: Net Income before Tax & Other Items

Net Income	$ 23,800
Add: Income Tax Expenses	$ 13,600
Net Income before Tax & Other Items	$ 37,400

Note 2 : Income Taxes Expenses

Income Taxes Payable on 2018	$ 3,000
Add: Income Taxes Expenses	$ 13,600
Less: Income Taxes Payable on 2019	- $ 2,450
Income Taxes Paid	$ 14,150