In: Finance
QUESTION 1
Given the following income statement and balance sheet data, select which items would be included in presenting the cash flow from operating activities section of the statement of cash flows using the indirect method:
Income Statement ($ millions) | 2019 | |||||||
Sales | $40,000 | |||||||
Less: Cost of goods sold | 21,600 | |||||||
Gross profits | 18,400 | |||||||
Less: Cash operating expenses | 12,400 | |||||||
Less: Depreciation expense | 1,100 | |||||||
Less: Amortization expense | 120 | |||||||
Operating profits (EBIT) | 4,780 | |||||||
Less: Interest expense | 300 | |||||||
Equity in earnings (loss) of affiliate | 40 | |||||||
Gain (loss) on sale of fixed assets | 80 | |||||||
Earnings before tax expense | 4,600 | |||||||
Income tax expense | 900 | |||||||
Net income | $3,700 | |||||||
Balance Sheet ($ millions) | 2019 | 2018 | Change | 2019 | 2018 | Change | ||
Cash & equivalents | $600 | $500 | $100 | Accounts payable | $1,730 | $2,050 | ($320) | |
Net receivables | 3,500 | 3,040 | $460 | Other accrued expenses | 2,480 | 2,050 | $430 | |
Inventories | 6,700 | 6,930 | ($230) | Short-term debt | 270 | 540 | ($270) | |
Prepaid expenses | 750 | 880 | ($130) | Other current liabilities | 520 | 480 | $40 | |
Total current assets | 11,550 | 11,350 | Total current liabilities | 5,000 | 5,120 | |||
Net property, plant, and equipment | 12,220 | 11,650 | $570 | Long-term debt | 4,680 | 4,450 | $230 | |
Investments in affiliates | 180 | 160 | $20 | Deferred taxes | 910 | 870 | $40 | |
Goodwill | 840 | 550 | $290 | Other long-term liabilities | 1,950 | 2,700 | ($750) | |
Other long-term assets | 210 | 290 | ($80) | Total stockholders' equity | 12,460 | 10,860 | $1,600 | |
Total assets | $25,000 | $24,000 | Total liabilities and equity | $25,000 | $24,000 |
Add-back depreciation expense of $1,100 |
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subtract depreciation expense of $1,100 |
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add-back amortization of intangible assets of $120 |
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subtract amortization of intangible assets of $120 |
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add change in receivables of $460 |
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subtract change in receivables of $460 |
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add change in inventories of $230 |
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subtract change in inventories of $230 |
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add change in prepaid expenses of $130 |
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subtract change in prepaid expensese of $130 |
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add change in other long-term assets of $80 |
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subtract change in other long-term assets of $80 |
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add change in accounts payable of $320 |
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subtract change in accounts payable of $320 |
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add change in accrued expenses of $430 |
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subtract change in accrued expenses of $430 |
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add change in deferred taxes of $40 |
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subtract change in deferred taxes of $40 |
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add-back interest expense of $300 |
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add gain on sale of fixed assets of $80 |
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subtract gain on sale of fixed assets of $80 |
Ans:
From the above options for calculation of operating activity we have to add followings
Depreciation expenses of $1100
Amortization of intangible assets of $120
Interest expenses of $ 300
Deferred tax of $40
Inventories of $230
Prepaid expenses of $130
Accrued expenses of $430
Notes : 1. Fixed assets sale will not come as it is part of investing activity.
2. Other long term assets will not come as it is part of investing activity.
We have to deduct followings
Receivable of $460
Payable of $320