Using the information below, prepare a partial statement of cash flows for the y
ID: 2364249 • Letter: U
Question
Using the information below, prepare a partial statement of cash flows for the year ended December 31, 2009, showing the computation of net cash flows from operating activities by the indirect method.
December 31, 2009 Jan. 1, 2009
Income statement:
Net Income $385,000
Depreciation Expense 125,000
Amortization of Intangible Assets 40,000
Gain on Sale of Plant Assets 90,000
Loss on Sale of Investments 35,000
Balance Sheet:
Accounts Receivable $335,000 $380,000
Inventory 503,000 575,000
Prepaid Expenses 22,000 10,000
Accounts Payable(to merchandise suppliers) 379,000 410,000
Accrued Expenses Payable 180,000 155,000
Explanation / Answer
Steps for the operating section of a cash flow statement:
1. Write "Cash Flows from Operating Activities"
2. Write "Net Income"
3. Write "Adjustments to reconcile net income to net cash provided by operating activities".
4. Add back non-cash expenses (depreciation, amortization, etc.). Subtract any gains and add any losses. Examine working capital (current asset and current liability) accounts.
5. Total the adjustments.
6. Add the net income and the adjustments. Write "Net Cash Provided (or Used if negative) by Operating Activities"
Statement of Cash Flows
Cash Flows from Operating Activities
Net Income 385,000
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation Expense 125,000
Amortization of Intangible Assets 40,000
Gain on Sale of Plant Assets (90,000)
Loss on Sale of Investments 35,000
Decrease in Accounts Receivable 45,000
Decrease in Inventory 72,000
Increase in Prepaid Expenses (12,000)
Decrease in Accounts Payable (31,000)
Increase in Accrued XPs Payable 25,000 209,000
Net Cash Provided By Operating Activities 594,000
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