Question

Stuart Brands, Inc. Stuart, presents its statement of cash flows using the indirect method. The following accounts and corresponding balances were drawn from Stuart’s 2017 and 2016 year-end balance sheets:

Account Title	2017			2016
Accounts receivable	$	23,800		$	26,700
Merchandise inventory		59,700			51,200
Prepaid insurance		19,000			26,700
Accounts payable		26,100			16,400
Salaries payable		4,950			4,150
Unearned service revenue		750			3,000

The 2017 income statement is shown below:

Income Statement
Sales	$	622,000
Cost of goods sold		(371,000	)
Gross margin		251,000
Service revenue		5,200
Insurance expense		(39,000	)
Salaries expense		(144,000	)
Depreciation expense		(5,800	)
Operating income		67,400
Gain on sale of equipment		3,100
Net income	$	70,500

Required

1. Prepare the operating activities section of the statement of cash flows using the direct method.

2. Prepare the operating activities section of the statement of cash flows using the indirect method.

Answer 1

1.

Stuart Brands
Statement of Cash flows (Partial)
For the Year Ended December 31, 2017
Cash flows from operating activities
Cash received from customers	$   627,850		622000+5200+26700-23800+750-3000
Cash paid to suppliers	$ (369,800)		371000+16400-26100+59700-51200
Cash paid for insurance expense	$   (31,300)		39000+19000-26700
Cash paid for salaries expense	$ (143,200)		144000+4150-4950
Net cash provided by operating activities		$ 83,550

2.

Stuart Brands
Statement of Cash flows (Partial)
For the Year Ended December 31, 2017
Cash flows from operating activities
Net Income		$ 70,500
Adjustments to reconcile net income to ;
Depreciation expense	$   5,800
Gain on sale of equipment	$ (3,100)
Decrease in accounts receivable	$   2,900
Increase in inventories	$ (8,500)
Decrease in prepaid insurance	$   7,700
Increase in accounts payable	$   9,700
Increase in salaries payable	$       800
Decrease in unearned service revenue	$ (2,250)
		$ 13,050
Net cash provided by operating activities		$ 83,550

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