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Hendrickson Corporation reported net income of \(50,000 in 2017. Depreciation expense was \)17,000. The following working capital accounts changed.

Accounts receivable $11,000 increase

Available-for-sale debt securities 16,000 increase

Inventory 7,400 increase

Nontrade note payable 15,000 decrease

Accounts payable 12,300 increase

Compute net cash provided by operating activities.

Short Answer

Expert verified

The net cash provided by operating activities is computed as $60,900

Step by step solution

01

Definition of net Income

The net income of the business is defined as the income earned by the company after deducting all the expenses from the revenues generated during the period.

02

Computation of net cash provided by operating activities

Cash flows from Operating Activities

Net Income

$50,000

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation Expense

17,000

Increase in accounts payable

12,300

Increase in accounts receivables

-11,000

Increase in Inventory

-7,400

10,900

Net cash provided by operating activities

$60,900

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Most popular questions from this chapter

What is the purpose of the statement of cash flows? What

information does it provide?

Question:The comparative balance sheets for Hinckley Corporation show the following information.


December 31

2017

2016

Cash

\(33,500

\)13,000

Accounts receivable

12,250

10,000

Inventory

12,000

9,000

Available-for-sale debt investment

0

3,000

Building

0

29,750

Equipment

45,000

20,000

Patents

5,000

6,250

\(107,750

\)91,000

Allowance for doubtful accounts

\(3,000

\)4,500

Accumulated depreciation โ€“ equipment

2,000

4,500

Accumulated depreciation โ€“ building

0

6,000

Accounts payable

5,000

3,000

Dividend payable

0

5,000

Notes payable, short-term (non-trade)

3,000

4,000

Long-term note payable

31,000

25,000

Common stock

43,000

33,000

Retained earnings

20,750

6,000

\(107,750

\)91,000

Additional data related to 2017 are as follows.

1. Equipment that had cost \(11,000 and was 40% depreciated at time of disposal was sold for \)2,500.

2. \(10,000 of the long-term note payable was paid by issuing common stock.

3. Cash dividends paid were \)5,000.

4. On January 1, 2017, the building was completely destroyed by a flood. Insurance proceeds on the building were \(30,000 (net of \)2,000 taxes).

5. Investments (available-for-sale) were sold at \(1,700 above their cost. The company has made similar sales and investments in the past.

6. Cash was paid for the acquisition of equipment.

7. A long-term note for \)16,000 was issued for the acquisition of equipment.

8. Interest of \(2,000 and income taxes of \)6,500 were paid in cash.

Instructions

Prepare a statement of cash flows using the indirect method. Flood damage is unusual and infrequent in that part of the country

(Computation of Operating Activitiesโ€”Direct Method) Presented below are two independent situations.

Situation A: Annie Lennox Co. reports revenues of \(200,000 and operating expenses of \)110,000 in its first year of operations, 2017. Accounts receivable and accounts payable at year-end were \(71,000 and \)29,000, respectively. Assume that the accounts payable related to operating expenses. (Ignore income taxes.)

Instructions

Using the direct method, compute net cash provided by operating activities.

Situation B: The income statement for Blues Traveler Company shows cost of goods sold \(310,000 and operating expenses (exclusive of depreciation) \)230,000. The comparative balance sheet for the year shows that inventory increased \(26,000, prepaid expenses decreased \)8,000, accounts payable (related to merchandise) decreased \(17,000, and accrued expenses payable increased \)11,000.

Instructions

Compute (a) cash payments to suppliers and (b) cash payments for operating expenses.

Question: The Procter & Gamble Company (P&G)

The financial statements of P&G are presented in Appendix B. The companyโ€™s complete annual report, including the notes to the financial statements, is available online.

Instructions

Refer to P&Gโ€™s financial statements and the accompanying notes to answer the following questions.

(a) Which method of computing net cash provided by operating activities does P&G use? What were the amounts of net cash provided by operating activities for the years 2012, 2013, and 2014? Which two items were most responsible for the decrease in net cash provided by operating activities in 2014?

(b) What was the most significant item in the cash flows used for investing activities section in 2014?

What was the most significant item in the cash flows used for financing activities section in 2014?

(c) Where is โ€œdeferred income taxesโ€ reported in P&Gโ€™s statement of cash flows? Why does it appear in that section of the statement of cash flows?

(d) Where is depreciation reported in P&Gโ€™s statement of cash flows? Why is depreciation added to net income in the statement of cash flows?

Question:(SCFโ€”Indirect Method) The following are Sullivan Corp.โ€™s comparative balance sheet accounts at December 31, 2017 and 2016, with a column showing the increase (decrease) from 2016 to 2017.

Comparative Balance Sheet

2017

2016

Increase (Decrease)

Cash

\(815,000

\)700,000

\(115,000

Accounts receivable

1,128,000

1,168,000

(40,000)

Inventory

1,850,000

1,715,000

135,000

Property, plant and equipment

3,307,000

2,967,000

340,000

Accumulated depreciation

(1,165,000)

(1,040,000)

(125,000)

Investment in Myers Co

310,000

275,000

35,000

Loan receivable

250,000

-

250,000

Total assets

\)6,495,000

\(5,785,000

\)710,000

Account payable

\(1,015,000

\)955,000

\(60,000

Income taxes payable

30,000

50,000

(20,000)

Dividend payable

800,000

100,000

(20,000)

Lease liability

400,000

-

400,000

Common stock, \) 1 par value

500,000

500,000

0

Paid-in-capital in excess of par โ€“ common stock

1,500,000

1,500,000

0

Retained earnings

2,970,000

2,680,000

290,000

Total liabilities and stockholders equity

\(6,495,000

\)5,785,000

\(710,000

Additional information:

1. On December 31, 2016, Sullivan acquired 25% of Myers Co.โ€™s common stock for \)275,000. On that date, the carrying value of Myersโ€™s assets and liabilities, which approximated their fair values, was \(1,100,000. Myers reported income of \)140,000 for the year ended December 31, 2017. No dividend was paid on Myersโ€™s common stock during the year.

2. During 2017, Sullivan loaned \(300,000 to TLC Co., an unrelated company. TLC made the first semi-annual principal repayment of \)50,000, plus interest at 10%, on December 31, 2017.

3. On January 2, 2017, Sullivan sold equipment costing \(60,000, with a carrying amount of \)38,000, for \(40,000 cash.

4. On December 31, 2017, Sullivan entered into a capital lease for an office building. The present value of the annual rental payments is \)400,000, which equals the fair value of the building. Sullivan made the first rental payment of \(60,000 when due on January 2, 2018.

5. Net income for 2017 was \)370,000.

6. Sullivan declared and paid the following cash dividends for 2017 and 2016.

2017

2016

Declared

December 15, 2017

December 15, 2016

Paid

February 28, 2018

February 28, 2018

Amount

\(80,000

\)100,000

Instructions

Prepare a statement of cash flows for Sullivan Corp. for the year ended December 31, 2017, using the indirect method.

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