Question

For each of the following three separate cases X, Y, and Z, compute cash flows from operations using the indirect method. The list includes all balance sheet accounts related to cash from operating activities.

Case X Case Y Case Z

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \( 4,000 \)100,000 $72,000

Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 8,000 24,000

Accounts receivable increase (decrease) . . . . . . . . . . . . . 40,000 20,000 (4,000)

Inventory increase (decrease) . . . . . . . . . . . . . . . . . . . . . . (20,000) (10,000) 10,000

Accounts payable increase (decrease) . . . . . . . . . . . . . . . 24,000 (22,000) 14,000

Accrued liabilities increase (decrease) . . . . . . . . . . . . . . . (44,000) 12,000 (8,000)

Short answer

The Net cash provided/(used) by operating activities is computed for case X is ($6,000), for case Y is $88,000, and Case Z is $96,000.

Step-by-step solution

Meaning of Operating Activity

Operating activities refer to all of the activities that are related to the day-to-day business operations, and these activities include sales, purchases, and production.

Computation of net cash provided by operating activities for case X

Particulars	Case X ($)
Net Income	4,000
Add/less: Adjustment to reconcile net income to net cash
Depreciation	30,000
Changes in working capital
Increase in accounts receivables	(40,000)
Decrease Inventory	20,000
Increase Accounts Payable	24,000
Decrease in Accrued liabilities	(44,000)
Net cash used by Operating activities	(6,000)

Computation of net cash provided by operating activities for case Y

Particulars	Case Y ($)
Net Income	100,000
Add/less: Adjustment to reconcile net income to net cash
Depreciation	8,000
Changes in working capital
Increase in accounts receivables	(20,000)
Decrease Inventory	10,000
Decrease Accounts Payable	(22,000)
Increase in Accrued liabilities	12,000
Net cash provided by Operating activities	88,000

Computation of net cash provided by operating activities for case Z  

Particulars	Case Z ($)
Net Income	72,000
Add/less: Adjustment to reconcile net income to net cash
Depreciation	24,000
Changes in working capital
Decrease in accounts receivables	4,000
Increase Inventory	(10,000)
Increase Accounts Payable	14,000
Decrease in Accrued liabilities	(8,000)
Net cash provided by Operating activities	96,000