Question

P17-3B Sable Island Ltd. is a private company reporting under ASPE. Its income statement contained the following condensed information: $900,000 amp SABLE ISLAND LTD. Income Statement Year Ended December 31, 2017 Fees earned 000 Operating expenses $642,000 Depreciation expense 50,000 Gain on sale of equipment (23,000) Profit from operations Other expenses Interest expense Profit before income tax Income tax expense Profit 669,000 231,000 5,000 226,000 56,500 $169,500

do part a), b)

Answer 1

In case of indirect method, operating cash flow is calculated by adjusting net income for non-cash transaction and for changes in working capital.
Calculation of operating activities section of cash flow statement using indirect method
Operating activities section of cash flow statement
Profit	$169,500
Add: Depreciation expense	$50,000
Less: Gain on sale of equipment	-$23,000
Changes in working capital
Decrease in accounts receivable	$8,000	(56000-48000)
Increase in prepaid expenses	-$2,500	(11500-14000)
Increase in accounts payable	$5,000	(41000-36000)
Decrease in income taxes payable	-$5,250	(4000-9250)
Increase in interest payable	$450	(1000-550)
Increase in unearned revenue	$3,750	(13750-10000)
Net cash provided from operating activities	$205,950
Calculation of operating activities section of cash flow statement using direct method
Operating activities section of cash flow statement
Cash receipt from customers	$908,000	(56000+900000-48000)
Cash paid for operating expenses	-$639,500
Cash paid for interest expense	-$4,550
Cash paid for income tax	-$61,750
Cash advance received from customer	$3,750	(13750-10000)
Net cash provided from operating activities	$205,950
Caculation of cash paid for operating activities
Operating expenses	$642,000
Increase in accounts payable	-$5,000	(41000-36000)
Increase in prepaid expenses	$2,500	(11500-14000)
Cash paid for operating activities	$639,500
Cash paid for interest expense
Interest expense	$5,000
Increase in interest expense payable	-$450	(550-1000)
Interest expense paid	$4,550
Calculation of income tax paid
Income tax expense	$56,500
Decrease in income tax payable	$5,250	(4000-9250)
Income tax paid	$61,750