Question

For the just completed year, Hanna Company had net income of $38,000. Balances in the company’s current asset and current liability accounts at the beginning and end of the year were as follows:

	December 31
	End of Year		Beginning of Year
Current assets:
Cash and cash equivalents	$	55,000	$	83,000
Accounts receivable	$	156,000	$	190,000
Inventory	$	436,000	$	367,000
Prepaid expenses	$	11,500	$	14,000
Current liabilities:
Accounts payable	$	364,000	$	384,000
Accrued liabilities	$	8,500	$	13,000
Income taxes payable	$	34,000	$	27,000

The Accumulated Depreciation account had total credits of $46,000 during the year. Hanna Company did not record any gains or losses during the year.

Required:

Using the indirect method, determine the net cash provided by operating activities for the year. (List any deduction in cash and cash outflows as negative amounts.)

Answer 1

Cash flow from operating activities
Net income	$   38,000
Adjustments to reconcile net income to net cash flow from operating activities
Depreciation expense	$   46,000
Decrease in accounts receivable	$   34,000
Increase in inventory	$ (69,000)
Decrease in prepaid expenses	$      2,500
Decrease in accounts payable	$ (20,000)
Decrease in Accrued liabilities	$   (4,500)
Increase in income tax payable	$      7,000
Net cash flow from operating activities		$ 34,000

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