7. Pedroia Company reported net income of $320,000 for the current year. Depreci

Question

7. Pedroia Company reported net income of $320,000 for the current year. Depreciation recorded on buildings and equipment amounted to $75,000 for the year. 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 $22,000 $15,000
Accounts receivable 17,000 32,000
Inventories 55,000 65,000
Prepaid expenses 7,500 5,000
Accounts payable 14,000 18,000
Income taxes payable 600 1,200

Instructions
Prepare the cash flows from the operating activities section of the statement of cash flows using the indirect method. (worth 5 points).

Explanation / Answer

Net income .........................................................$320,000

Adjustments to reconcile net income to net cash provided by operating activities:

         Depreciation expense .......................................75,000

         Decrease in accounts receivable ...........................15,000

         Decrease in inventories .....................................10,000

         Increase in prepaid expenses ..............................(2,500)

         Decrease in accounts payable ..............................(4,000)

Increase in income taxes payable ......................... (600)

         Net cash provided by operating activities .................$412,900

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