Question

The income statement of Smith Company is shown below. Sales .... SMITH COMPANY INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2017 ..............$755,000 Cost of goods sold. ... ..............543,000 Gross profit...... .............212,000 Operating expenses Selling expenses ....... $52,000 Administrative expenses ............... ........89,000..........141,000 Income before tax ................ ......................71,000 Income Tax Expense .............. .....20,000 Net income ......... $ 51,000 Additional information: 1. Accounts receivable decreased by $63,000 during the year. 2. Inventory increased by $38,000 during the year. 3. Prepaid expenses increased by $12,000 during the year. 4. Accounts payable increased by $25,000 during the year. All of the accounts payable are related to inventory purchases. 5. Accrued expenses payable increased by $6,000 during the year. 6. Income Taxes Payable increased by $2,000 during the year. 7. Administrative expenses include $20,000 of depreciation expense. (a.) Prepare the operating activities section of Smith Company's Statement of Cash Flows for the year ended December 31, 2017, using the indirect method. You are only required to prepare the operating activities section of of the statement. (7 points) (b.)Prepare the operating activities section of Smith Company's Statement of Cash Flows for the year ended December 31, 2017, using the direct method. You are only required to prepare the operating activities section of the statement.

Answer 1

Solution Part (a Smith Company Statement of Cash Flows (Indirect Method) (Partial) For the Year Ended December 31, 2017 Cash flows from operating Activities Net Income Adjustments to reconcile net income to Cash flow from operating activities Depreciation Expense Decrease in Accounts Receivable $51,000 $20,000 $63,000 ($38,000) ($12,000) $25,000 $6,000 Increase in Inventories Increase in prepaid expenses Increase in Accounts Payable Increase in Accrued expenses payable Increase in income taxes payable $2,000 $66,000 $117,000 Net cash provided by operating activities Part (b Smith Company Statement of Cash Flows (Direct Method) (Partial) For the Year Ended December 31, 2017 Cash flows from operating activities $818,000 Cash received from customers (WN-1) Cash paid for merchandise (WN-2) Cash paid for operating expenses (WN-3) Cash paid for income taxes (WN-4) ($556,000) ($127,000) ($18,000) Net cash provided by operating activities $117,000

WN-1: Cash received from customers Sales $755,000 Add: Decrease in Accounts Receivable $63,000 Cash received from customers $818,000 WN-2: Cash paid for merchandise Cost of Goods sold $543,000 $38,000 Increase in Inventories Purchases, Net $581,000 Less: Increase in Accounts Payable ($25,000) $556,000 Cash paid for merchandise WN-3: Cash paid for operating expenses Operating expenses Less: Depreciation (non cash expense) Add: Increase in prepaid expenses $141,000 ($20,000) $12,000 $133,000 Less: Increase in accrued expense payable ($6,000) $127,000 Cash paid for operating expenses WN-4: Cash paid for income taxes Income taxes expense $20,000 Less: Increase in income taxes payable ($2,000) $18,000 Cash paid for income taxes