Question

M12-5 Computing Cash Flows from Operating Activities (Indirect Method) [LO 12-2]

The two independent cases are listed below:

Case A

Case B

Year 2 Year 1 Year 2 Year 1
  Sales Revenue $ 10,900 $ 8,500 $ 20,900 $ 17,500
  Cost of Goods Sold 5,910 5,100 11,910 10,510
  Gross Profit 4,990 3,400 8,990 6,990
  Depreciation Expense 1,200 1,200 1,450 1,450
  Salaries and Wages Expense 2,400 1,900 4,900 4,900
  Net Income 1,390 300 2,640 640
  Accounts Receivable 295 390 740 595
  Inventory 745 490 725 790
  Accounts Payable 790 695 810 900
  Salaries and Wages Payable 995 1,190 265 360

Show the operating activities section of the statement of cash flows for year 2 using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Cash Flow from Operating Activity:-

Case A :-

Cash Flow from Operating Activity :-
Net Income		$1390
Add : Depreciation Exp.	$1200
Add : Decrease in Accounts Receivable ($295-$390)	$95
Less : Increase in Inventory ($745-$490)	($255)
Add : Increase in Accounts Payable ($790 - $695)	$95
Less : Decrease in Salaries and Wages Payable ($995-$1190)	($195)	$940
Cash Flow from Operating Activity		$2330

Case B :-

Cash Flow from Operating Activity :-
Net Income		$2640
Add : Depreciation Exp.	$1450
Less : Increase in Accounts Receivable ($740-$595)	($145)
Add : Decrease in Inventory ($725-$790)	$65
Less : Decrease in Accounts Payable ($810 - $900)	($90)
Less : Decrease in Salaries and Wages Payable ($265-$360)	($95)	$1185
Cash Flow from Operating Activity		$3825