P 10-4 The income statement and other selected data for Frish Company follow: FR

Question

P 10-4 The income statement and other selected data for Frish Company follow: FRISH COMPANY Income Statement For Year Ended December 31, 2011 Accrual Cash Net sales $640,000 ($27,000) $613,000 Expenses: Cost of goods sold 360,000 $5,000 $365,000 Selling and administrative expense 43,000 ($9,000) $34,000 Other expense 2,000 ($2,000) $0 Total expenses 405,000 399,000 Income before income tax 235,000 214,000 Income tax 92,000 $10,000 $102,000 Net income $143,000 $112,000 Other data: a. Cost of goods sold, including depreciation expense of $15,000 * b. Selling and administrative expense, including depreciation expense of $5,000 c. Other expense, representing amortization of patent, $3,000, and amortization of bond premium, $1,000 d. Increase in accounts receivable $27,000 * e. Increase in accounts payable 15,000 * f. Increase in inventories 35,000 g. Decrease in prepaid expenses 1,000 * h. Increase in accrued liabilities 3,000 * i. Decrease in income taxes payable 10,000 * Required a. Prepare a schedule of change from accrual basis to cash basis income statement. b. Using the schedule of change from accrual basis to cash basis income statement computed in (a), present the cash provided by operations, using (1) the direct approach and (2) the indirect approach. P 10-4 The income statement and other selected data for Frish Company follow: FRISH COMPANY Income Statement For Year Ended December 31, 2011 Accrual Cash Net sales $640,000 ($27,000) $613,000 Expenses: Cost of goods sold 360,000 $5,000 $365,000 Selling and administrative expense 43,000 ($9,000) $34,000 Other expense 2,000 ($2,000) $0 Total expenses 405,000 399,000 Income before income tax 235,000 214,000 Income tax 92,000 $10,000 $102,000 Net income $143,000 $112,000 Other data: a. Cost of goods sold, including depreciation expense of $15,000 * b. Selling and administrative expense, including depreciation expense of $5,000 c. Other expense, representing amortization of patent, $3,000, and amortization of bond premium, $1,000 d. Increase in accounts receivable $27,000 * e. Increase in accounts payable 15,000 * f. Increase in inventories 35,000 g. Decrease in prepaid expenses 1,000 * h. Increase in accrued liabilities 3,000 * i. Decrease in income taxes payable 10,000 * Required a. Prepare a schedule of change from accrual basis to cash basis income statement. b. Using the schedule of change from accrual basis to cash basis income statement computed in (a), present the cash provided by operations, using (1) the direct approach and (2) the indirect approach.

Explanation / Answer

1)

Indirect method of cash flow statement Particulars Amount Net income for the year 143000 Add: Depreciation 15000 Adjusted income 158000 Adjust revenues and expense: Increase in accounts receivable -27000 Increase in inventory -35000 Increase in accounts payable 15000 Increase in accrued expense 3000 Decrease in prepaid expense 1000 Decrease in income tax payable -10000 Adjustements -53000 Cash flow from operating activities 105000

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