Question

Blackwell Company's income statement for 2020 consisted of:
	Revenues			1,220,000
	Cost of goods sold		627,000
	Operating expenses		295,000
	Depreciation expense		60,000
	Interest expense		26,000
	Gain on the sale of machinery		(12,000)
	Loss on the sale of investments		8,000	1,004,000
	Income before income tax			216,000
	Income tax expense			40,000
	Net income			176,000
Blackwell's comparative balance sheet information for 2020 included:
			12/31/20	12/31/19
	Accounts receivable		268,000	257,000
	Accounts payable		47,000	42,000
	Income taxes payable		17,000	13,500
	Interest payable		9,000	7,500
	Bonds payable		500,000	500,000
	Discount on bonds payable		26,000	28,000
Prepare the Cash flows from operating activities section of Blackwell's 2020 Statement of Cash Flows using the indirect method
and the required disclosures for interest and income tax expense.

Answer 1

Cash Flow Statement (Indirect Method)
Particulars	Amount	Amount
Net Income		$    176,000.00
Adjustments to reconcile net income to:
Net cash provided by operating activities
Amortization of discount on bonds payable	$        2,000.00
Depreciation	$      60,000.00
Gain on sale of machinery	$    (12,000.00)
Loss on the sale of investments	$        8,000.00
Increase in Accounts Receivable	$    (11,000.00)
Increase in Interest Payable	$        1,500.00
Increase in Income Tax Payable	$        3,500.00
Increase in Accounts Payable	$        5,000.00
Net Cash Generated		$      57,000.00
Net cash provided by operating activities	(A)	$    233,000.00

Note:
Here, interest expense includes amortization of discount on bonds payable, which is a non- cash expense.
Therefore, we need to add back that amount, like we do in case of depreciation.
Discount amortized during the year				$ 2,000.00	($ 28000 - $ 26000)

	Disclosure for Interest Expense
	Interest Expense Incurred				$ 26,000.00
Add:	Beginning Interest Payable				$   7,500.00
Less:	Ending Interest Payable				$   9,000.00
	Interest Expense paid in cash				$ 24,500.00

	Disclosure for Income Tax
	Beginning Income Tax Payable				$ 13,500.00
Less:	Ending Income Tax Payable				$ 17,000.00
Add:	Income Tax Expense				$ 40,000.00
	Income Tax paid in cash				$ 36,500.00