Question

In: Accounting

The net income reported on the income statement for the current year was $121,600. Depreciation recorded...

The net income reported on the income statement for the current year was $121,600. Depreciation recorded on store equipment for the year amounted to $20,100. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:

End of Year Beginning of Year
Cash $49,490 $45,530
Accounts receivable (net) 35,480 33,650
Inventories 48,450 51,220
Prepaid expenses 5,440 4,330
Accounts payable (merchandise creditors) 46,370 43,070
Wages payable 25,340 28,140

a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.

Statement of Cash Flows (partial)
Cash flows from operating activities:
$
Adjustments to reconcile net income to net cash flow from operating activities:
Changes in current operating assets and liabilities:
Net cash flow from operating activities $

b. Cash flows from operating activities differs from net income because it does not use the (Actual basis/cash basis)of accounting. For example, revenues are recorded on the income statement when (They are earned/cash is received)  

Solutions

Expert Solution

a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.

Statement of Cash Flows (partial)
Cash flows from operating activities:
Net income $121600
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation expense 20100
Changes in current operating assets and liabilities:
Increase account receivable -1830
Decrease inventories 2770
Increase prepaid expense -1110
Increase account payable 3300
Decrease wages payable -2800
Net cash flow from operating activities $142030

b. Cash flows from operating activities differs from net income because it does not use the Accrual basis of accounting. For example, revenues are recorded on the income statement when They are earned.


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