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Data for Krauss Company are presented in E23-5.

Instructions

Prepare the operating activities section of the statement of cash flows using the indirect method.

Short Answer

Expert verified

The net cash provided by operating activities is computed as $198,500.

Step by step solution

01

Definition of Indirect method

The indirect method of cash flow statement is defined as the method of preparing the statement of cash flow which starts from net income and it uses increases and decreases in balance sheet line items to modify the operating section of the cash flow.

02

Preparation statement of cash flow (partial)

KRAUSS COMPANY
Partial Statement of Cash Flows
For the year ended December 31, 2017

Net Income

$90,000

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

Depreciation expense

$60,000

Loss on sale of equipment

26,000

Decrease in accounts receivable

17,000

Increase in accounts payable

10,000

Decrease in income tax payable

-4,500

108,500

Net cash provided by operating activities

$198,500

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Most popular questions from this chapter

Founded in the early 1980s, the Vermont Teddy Bear Co. designs and manufactures American-made teddy bears and markets them primarily as gifts called Bear-Grams or Teddy Bear-Grams. Bear-Grams are personalized teddy bears delivered directly to the recipient for special occasions such as birthdays and anniversaries. The Shelburne, Vermont, companyโ€™s primary markets are New York, Boston, and Chicago. Sales have jumped dramatically in recent years. Such dramatic growth has significant implications for cash flows. Provided below are the cash flow statements for two recent years for the company.

Current Year

Prior Year

Cash flows from operating activities:

Net income

\( 17,523

\) 838,955

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

Deferred income taxes

(69,524)

(146,590)

Depreciation and amortization

316,416

181,348

Changes in assets and liabilities:

Accounts receivable, trade

(38,267)

(25,947)

Inventories

(1,599,014)

(1,289,293)

Prepaid and other current assets

(444,794)

(113,205)

Deposits and other assets

(24,240)

(83,044)

Accounts payable

2,017,059

(284,567)

Accrued expenses

61,321

170,755

Accrued interest payable, debentures

-

(58,219)

Other

-

(8,960)

Income taxes payable

-

117,810

Net cash provided by (used for) operating activities

236,480

(700,957)

Net cash used for investing activities

(2,102,892)

(4,422,953)

Net cash (used for) provided by financing activities

(315,353)

9,685,435

Net change in cash and cash equivalents

(2,181,765)

4,561,525

Other information:

Current liabilities

\( 4,055,465

\) 1,995,600

Total liabilities

4,620,085

2,184,386

Net sales

20,560,566

17,025,856

Instructions

  1. Note that net income in the current year was only \(17,523 compared to prior-year income of \)838,955, but net cash flow from operating activities was \(236,480 in the current year and a negative \)700,957 in the prior year. Explain the causes of this apparent paradox.
  2. Evaluate Vermont Teddy Bearโ€™s liquidity, solvency, and profitability for the current year using cash flow-based ratios.

In 2017, Leppard Inc. issued 1,000 shares of \(10 par value common stock for land worth \)40,000.

(a) Prepare Leppardโ€™s journal entry to record the transaction.

(b) Indicate the effect the transaction has on cash.

(c) Indicate how the transaction is reported on the statement of cash flows.

Bloom Corporation had the following 2017 income statement.

Sales revenue

\(200,000

Cost of goods sold

120,000

Gross profit

80,000

Operating expenses (including depreciation of \)21,000)

50,000

Net income

\(30,000

The following accounts increased during 2017: Accounts Receivable \)12,000, Inventory \(11,000, and Accounts Payable \)13,000. Prepare the cash flows from the operating activities section of Bloomโ€™s 2017 statement of cash flows using the direct method.

What are the major sources of cash (inflows) in a statement of cash flows? What are the major uses (outflows) of cash?

In 2017, Wild Corporation reported a net loss of \(70,000. Wildโ€™s only net income adjustments were depreciation expense \)81,000, and increase in accounts receivable $8,100. Compute Wildโ€™s net cash provided (used) by operating activities.

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