Question

Exercise 12-4 Indirect: Cash flows from operating activities LO P2 The following income statement and information about changes in noncash current assets and current liabilities $2,333,000 1,143,170 1,189,830 SONAD COMPANY Income Statement For Year Ended December 31, 2017 Sales Cost of goods sold Gross profit Operating expenses Salaries expense $319,621 Depreciation expense 55,992 Rent expense 62,991 Amortization expenses-Patents 6,999 Utilities expense 25,663 471,266 718,564 9,332 727,896 Gain on sale of equipment Net income $ Changes in current asset and current liability accounts for the year that relate to operations follow. Accounts receivable Inventory $28, 250 increase 37,650 increase Accounts payable Salaries payable $ 8,400 decrease 1,800 decrease

Answer 1

Solution

SONAD COMPANY
Cash Flow Statement (Partial)
A. Cash Flows from Operating Activity
Net Income	$     727,896.00
Adjustments to reconcile net income to net cash provided by operating activities
Income statement items not affecting cash
Depreciation expense	$       55,992.00
Gain on sale of equipment	$       (9,332.00)
Patent amortization expense	$          6,999.00
Changes in current operating assets and liabilities
Increase in Accounts receivables	$     (28,250.00)
Increase in Inventory	$     (37,650.00)
Decrease in Accounts Payable	$       (8,400.00)
Decrease In salaries payable	$       (1,800.00)
Net cash flow from Operating activities	$     705,455.00

.General notes for cash flow
Cash is increased when Current liability increase or Current asset Decrease.
Cash is Decreased when Current liability Decrease or Current asset Increase.
Depreciation or loss on sale of any asset is a non cash expense hence it will be added to net income to get operating cash
Profit on sale of asset or investment is a non cash profit and hence will be deducted from operating income.