Based on the following income statement and balance sheet for Rashid Corporation

Question

Based on the following income statement and balance sheet for Rashid Corporation, determine the cash flows from operating activities using the indirect method.

Rashid Corporation
Income Statement
For Year ended Dec. 31, 2011

Sales 504,000
Cost of goods sold 327,600
Depreciation expense 42000
other operating expenses 125500 (495100)
other gains (losses):
Gain on sale of equipment 7200
Income before taxes 16100
Income tax expense (4800)
Net income 11,300

Rashid Corporation
Balance Sheets
For Year ended Dec. 31, 2011

2009 2008
Assets
Cash 64650 55800
Accounts Receivable 21000 29000
Inventory 58000 52100
Equipment 240000 222000
Accumulated depreciation (106000) (96000)
Total assets 277650 262900

Liabilities:
Accounts Payable 28400 23700
Income taxes payable 1050 1200
Total Liabilities 29450 24900

Equity
Common Stock 106000 106000
Capital in excess of par value 18000 18000
Retained earnings 124200 114000
Total equity 248200 238000
Total liabilities and equity 277650 262900

Explanation / Answer

CASH FLOW FROM OPERATING ACTIVITIES net profit before tax and extraordinary items 16100 add-non cash and non operating expenses:- depreciation-42000 less-non cash and non operating incomes:-(7200) operating profit before working capital changes 50900 adjustments for changes in current assets and current liabilities:- add-decrease in current assets and increase in current liabilities Accounts Receivable 8000 Accounts Payable 4700 less-increase in current assets and decrease in current liabilities:- Inventory (5900) cash generated from operations before tax 57700 less tax paid (4950) net cash flows from operating activities 52750 calculation of income tax paid:- tax expenses during the year 4800 add:income tax liability at the beginning of year 1200 less:income tax liability at the end of year (1050) tax paid during the year 4950

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