Question

Wildhorse Company’s income statement for the year ended December 31, 2017, contained the following condensed information.

Service revenue				$836,000
Operating expenses (excluding depreciation)		$626,000
Depreciation expense		60,000
Loss on sale of equipment		26,000		712,000
Income before income taxes				124,000
Income tax expense				40,000
Net income				$84,000

Wildhorse’s balance sheet contained the following comparative data at December 31.

		2017		2016
Accounts receivable		$38,000		$53,000
Accounts payable		41,000		30,000
Income taxes payable		4,100		8,400

(Accounts payable pertains to operating expenses.)

Prepare the operating activities section of the statement of cash flows using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

WILDHORSE COMPANY Statement of Cash Flows (Partial) December 31, 2017For the Year Ended December 31, 2017For the Quarter Ended December 31, 2017
Cash at Beginning of PeriodCash at End of PeriodCash Flows from Financing ActivitiesCash Flows from Investing ActivitiesCash Flows from Operating ActivitiesNet Cash Provided by Financing ActivitiesNet Cash Provided by Investing ActivitiesNet Cash Provided by Operating ActivitiesNet Cash Used by Financing ActivitiesNet Cash Used by Investing ActivitiesNet Cash Used by Operating ActivitiesNet Decrease in CashNet Increase in Cash
Increase in Accounts ReceivableLoss on Sale of EquipmentDepreciation expenseIncrease in Accounts PayableGain on Sale of EquipmentIncrease in Income Taxes PayableDecrease in Accounts PayableDecrease in Accounts ReceivableDecrease in Income Taxes PayableNet Income		$
Adjustments to reconcile net income to
Cash at Beginning of PeriodCash at End of PeriodCash Flows from Financing ActivitiesCash Flows from Investing ActivitiesCash Flows from Operating ActivitiesNet Cash Provided by Financing ActivitiesNet Cash Provided by Investing ActivitiesNet Cash Provided by Operating ActivitiesNet Cash Used by Financing ActivitiesNet Cash Used by Investing ActivitiesNet Cash Used by Operating ActivitiesNet Decrease in CashNet Increase in Cash
Increase in Income Taxes Payable    Gain on Sale of Equipment    Increase in Accounts Receivable    Depreciation expense    Net Income    Decrease in Income Taxes Payable    Increase in Accounts Payable    Decrease in Accounts Payable    Decrease in Accounts Receivable    Loss on Sale of Equipment	$
Depreciation expense    Increase in Income Taxes Payable    Decrease in Income Taxes Payable    Decrease in Accounts Receivable    Decrease in Accounts Payable    Net Income    Increase in Accounts Payable    Gain on Sale of Equipment    Increase in Accounts Receivable    Loss on Sale of Equipment
Net Income    Decrease in Accounts Payable    Loss on Sale of Equipment    Increase in Accounts Receivable    Decrease in Accounts Receivable    Increase in Accounts Payable    Gain on Sale of Equipment    Increase in Income Taxes Payable    Decrease in Income Taxes Payable    Depreciation expense
Decrease in Accounts Receivable    Decrease in Income Taxes Payable    Increase in Accounts Payable    Decrease in Accounts Payable    Depreciation expense    Gain on Sale of Equipment    Increase in Income Taxes Payable    Loss on Sale of Equipment    Increase in Accounts Receivable    Net Income
Decrease in Accounts Payable    Loss on Sale of Equipment    Increase in Accounts Payable    Increase in Accounts Receivable    Gain on Sale of Equipment    Depreciation expense    Decrease in Income Taxes Payable    Decrease in Accounts Receivable    Net Income    Increase in Income Taxes Payable
Cash at Beginning of PeriodCash at End of PeriodCash Flows from Financing ActivitiesCash Flows from Investing ActivitiesCash Flows from Operating ActivitiesNet Cash Provided by Financing ActivitiesNet Cash Provided by Investing ActivitiesNet Cash Provided by Operating ActivitiesNet Cash Used by Financing ActivitiesNet Cash Used by Investing ActivitiesNet Cash Used by Operating ActivitiesNet Decrease in CashNet Increase in Cash		$

Answer 1

WILDHORSE COMPANY
Statement of Cash Flows (Partial)
For the Year Ended December 31, 2017
Cash Flows from Operating Activities:
Net Income		$84,000
Adjustments to Reconcile Net Income to
Net Cash provided by Operating Activities:
Depreciation expense	$60,000
Loss on Sale of Equipment	$26,000
Decrease in accounts receivable	$15,000
Increase in accounts payable	$11,000
Decresase in Income Taxes Payable	($4,300)
		$107,700
Net Cash provided by Operating Activities		$191,700

.

.

Note:

1. Depreciation expense: As depreciation expense is a non-cash expense, it has to be added back to the net income to arrive to the cash provided by the operating activities

2. Increase in current assets is a cash outflow

3. Decrease in current assets is a cash inflow

4. Increase in current liability is a cash inflow

5. Decrease in current liability is a cash outflow