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Chapter 14: Q14-4SE (page 770)

Question: Computing cash flows from operating activities—indirect method

DVR Equipment, Inc. reported the following data for 2018:

Income Statement:

Net Income $ 43,000

Depreciation Expense 6,000

Balance Sheet:

Increase in Accounts Receivable 6,000

Decrease in Accounts Payable 2,000

Compute DVR’s net cash provided by operating activities—indirect method.

Short Answer

Expert verified

Answer

Net cash provided by operating activities is $41,000.

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

Net Income

$43,000

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

Depreciation expense

$6,000

Increase in account receivables

($6,000)

Decrease in account payables

($2,000)

Net cash provided by operating activities

$41,000

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Most popular questions from this chapter

The 2018 comparative balance sheet and income statement of Appleton Group, Inc. follow. Appleton disposed of a plant asset at book value during 2018

Prepare the spreadsheet for the 2018 statement of cash flows. Format cash flows from operating activities by the indirect method. A plant asset was disposed of for \(0. The cost and accumulated depreciation of the disposed asset was \)11,600. There were no sales of land, no retirement of common stock, and no treasury stock transactions. Assume plant asset and land acquisitions were for cash.

Question: How does the direct method differ from the indirect method when preparing the operating activities section of the statement of cash flows?

Preparing the direct method statement of cash flows Red Toy Company reported the following comparative balance sheet:

Requirements

1. Compute the collections from customers during 2018 for Red Toy Company. Sales Revenue totaled \(134,000.

2. Compute the payments for inventory during 2018. Cost of Goods Sold was \)79,000.

Question: If current liabilities increase, what is the effect on cash? What about a decrease in current liabilities?

Boundary Rare Coins (BRC) was formed on January 1, 2018. Additional data for the year follow:

  1. On January 1, 2018, BRC issued no-par common stock for \(475,000.
  2. Early in January, BRC made the following cash payments:For store fixtures, \)53,000;For merchandise inventory, \(260,000;For rent expense on the store building, \)13,000
  3. Later in the year, BRC purchased merchandise inventory on account for \(240,000. Before year-end, BRC paid \)160,000 of these accounts payable.
  4. During 2018, BRC sold 2,200 units of merchandise inventory for \(450 each. Before year-end, the company collected 85% of this amount. Cost of goods sold for the year was \)330,000, and ending merchandise inventory totaled \(170,000.
  5. The store employs three people. The combined annual payroll is \)80,000, of which BRC still owes \(4,000 at year-end.
  6. At the end of the year, BRC paid income tax of \)24,000. There are no income taxes payable.
  7. Late in 2018, BRC paid cash dividends of $40,000.
  8. For store fixtures, BRC uses the straight-line depreciation method, over five years, with zero residual value.

Requirements

  1. Prepare BRC’s income statement for the year ended December 31, 2018. Use the single-step format, with all revenues listed together and all expenses listed together.
  2. Prepare BRC’s balance sheet at December 31, 2018.
  3. Prepare BRC’s statement of cash flows for the year ended December 31, 2018. Format cash flows from operating activities by the direct method.
See all solutions

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