Question

In: Accounting

USE INDIRECT METHOD The profit or loss section of the statement of comprehensive income of ITS...

USE INDIRECT METHOD

The profit or loss section of the statement of comprehensive income of ITS NOT OK NOT TO BE OK company for the year ended December 31, 2020 as reproduced below:

Sales- 6,100,000

COGS- 3,700,000

GROSS PROFIT- 2,400,000

Gain on sale of equipment- 100,000

Salaries expense- (820,000)

Insurance expense- 380,000

Depreciation expense- 220,000

Profit before interest and income tax -1,080,000

Interest Expense- 120,000

Profit before income tax- 960,000

Income tax expense- 288,000

Profit- 672,000

The following info is also available

Decrease in AR- 120,000

Increase in Inventory- 280,000

Decrease in AP- 160,000

Increase in Salaries Payable- 100,000

Increase in Prepaid Insurance- 180,000

Decrease in interest payable- 30,000

Increase in income tax payable- 18,000

REQUIRE: PREPARE INDIRECT METHOD

Solutions

Expert Solution

Cash Flow prepared using the Indirect Method

Particulars Amount
Cash flow from Operating Activities
Net Profit Before tax          960,000
Add Depreciation Expense          220,000
Less Gain on Sale of Equipment        (100,000)
Total       1,080,000
A) Change in Working Capital
Add Decrease in AR          120,000
Less Increase in Inventory        (280,000)
Less Decrease in AP        (160,000)
Add Increase in Salary Payable          100,000
Less Increase in Prepaid Insurance        (180,000)
Less Decrease in Interest Payable          (30,000)
Add Increase in Income Tax Payable           18,000
       (412,000)
B) Total Cash Inflow from Operating Activities (A+B)          668,000
Cash flow from Investing Activities 0.00
(Since the proceeds from Sale of Equipment is not given in the sum)
Cash flow from Financing Activities 0.00
(Since no new financial instruments were issued or redeemed)
Total Cash Inflow for the year          668,000

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