The net income reported on the income statement for the current year was $423,90

Question

The net income reported on the income statement for the current year was $423,900. Depreciation recorded on store equipment for the year amounted to $17,560. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:

Required:

a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. Use the minus sign to indicate cash outflows, cash payments, decreases in cash and for any adjustments, if required.

Statement of Cash Flows (partial)

1

Cash flows from operating activities:

2

3

Adjustments to reconcile net income to net cash flow from operating activities:

4

5

Changes in current operating assets and liabilities:

6

7

8

9

10

11

End of Year Beginning of Year Cash $42,670 $40,170 Accounts receivable (net) 30,670 27,430 Inventories 38,830 45,750 Prepaid expenses 3,680 4,890 Accounts payable (merchandise creditors) 39,630 35,780 Wages payable 21,610 23,900

Explanation / Answer

a) Statement of Cash Flows (Operating Activities) Amount $ Operating Activities Net Income 4,23,900 Adjustments: Non-Cash adjustment: Depreciation 17,560 Due to changes in Working capital Due to changes in accounts receivable (27430-30670) -3,240 Due to changes in Inventories (45750-38830)            6,920 Due to changes in Prepaid expenses (4890-3680)            1,210 Due to changes in accounts payable (39630-35780)            3,850 Due to changes in wages payable (21610-23900)           -2,290 Net Cash provided (used) by operating activities      4,47,910 b) The net cash flow from operating activities is different than net income due to the non-cash incomes or expenses like depreciation/Amortization, Profit/loss on sale of assets etc

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