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Chapter 14: 19E (page 732)

Computing operating activities cash flow—indirect method
The records of Vintage Color Engraving reveal the following:
Net income \( 36,000
Depreciation expense \) 5,000
Sales revenue 53,000
Decrease in current liabilities 19,000
Loss on sale of land 4,000
Increase in current assets other than cash 10,000
Acquisition of land 35,000
Compute cash flows from operating activities by the indirect method for year ended December 31, 2018.

Short Answer

Expert verified

Net cash provided by operating activities is $16,000.

Step by step solution

01

Cash flow from operating activities- Indirect method

Indirect method starts with net income and adjustments are made to reconcile net income to net cash provided by operating activities.

02

Cash flow from operating activities

Cash flows from operating activities	Amount	Amount
Net Income		$36,000
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation expense	$5,000
Increase in current assets other than cash	($10,000)
Decrease in current liabilities	($19,000)
Loss on sale of land	$4,000
Net cash provided by operating activities		$16,000

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Most popular questions from this chapter

Question: Muench, Inc.’s accountant has partially completed the spreadsheet for the statement of cash flows. Fill in the remaining missing information.

Question: Computing cash flows for investing and financing activities Consider the following facts for Java Jolt:

Beginning and ending Retained Earnings are \(45,000 and \)70,000, respectively. Net income for the period is \(60,000.
Beginning and ending Plant Assets are \)124,500 and \(134,500, respectively.
Beginning and ending Accumulated Depreciation—Plant Assets are \)21,500 and \(26,500, respectively.
Depreciation Expense for the period is \)17,000, and acquisitions of new plant assets total \(29,000. Plant assets were sold at a \)5,000 gain. Requirements
How much are cash dividends?
What was the amount of the cash receipt from the sale of plant assets?

Preparing the statement of cash flows—indirect method with non-cash transactions the 2018 income statement and comparative balance sheet of Rolling Hills, Inc. follow:

Additionally, Rolling Hills purchased land of \(21,100 by financing it 100% with long-term notes payable during 2018. During the year, there were no sales of land, no retirements of stock, and no treasury stock transactions. A plant asset was disposed of for \)0. The cost and the accumulated depreciation of the disposed asset was $13,410. The plant acquisition was for cash.

Requirements

1. Prepare the 2018 statement of cash flows, formatting operating activities by the indirect method.

2. How will what you learned in this problem help you evaluate an investment?

Julie Lopez Company expects the following for 2018:

Net cash provided by operating activities of \(148,000.
Net cash provided by financing activities of \)56,000.
Net cash used for investing activities of \(77,000 (no sales of long-term assets).
Cash dividends paid to stockholders of \)7,000.

How much free cash flow does Lopez expect for 2018?

Question: Owl, Inc.’s accountants have assembled the following data for the year ended December 31, 2018: Cash receipt from sale of equipment \( 20,000

Depreciation expense 12,000

Cash payment of dividends 4,000

Cash receipt from issuance of common stock 12,000

Net income 30,000

Cash purchase of land 25,000

Increase in current liabilities 10,000

Decrease in current assets other than cash 8,000

Prepare Owl’s statement of cash flows using the indirect method for the year ended December 31, 2018. Assume beginning and ending Cash are \)12,000 and $75,000 respectively

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