Question

The net income reported on the income statement for the current year was $232,500. Depreciation recorded on equipment and a building amounted to $69,500 for the year. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows: End of Year Beginning of Year Cash $63,940 $66,500 Accounts receivable (net) 81,080 82,060 Inventories 159,850 141,380 Prepaid expenses 8,890 9,380 Accounts payable (merchandise creditors) 71,420 74,210 Salaries payable 10,290 9,240 a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments. Statement of Cash Flows (partial) Cash flows from operating activities: $ Adjustments to reconcile net income to net cash flow from operating activities: Changes in current operating assets and liabilities: Net cash flow from operating activities $ b. If the direct method had been used, would the net cash flow from operating activities have been the same?

Answer 1

Statement of Cash Flows (partial)
Cash flows from operating activities:
Net income	232500
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation	69500
Changes in current operating assets and liabilities:
Decrease in accounts receivable	980
Increase in inventories	-18470
Decrease in prepaid expenses	490
Decrease in accounts payable	-2790
Increase in salaries payable	1050
Net cash flow from operating activities		283260
2
Yes,the net cash flow from operating activities would have been the same under direct method