Question

The comparative balance sheet for Majestic Travel Services, Inc., for December 31, 2017 and 2016, is as follows: (dlick the icon to view the comparative balance sheet.) The following information is taken from the records of Majestic Travel Services, Inc. (Click the icon to view the transaction data.) Prepare the statement of cash flows (indirect method) for Majestic Travel Services, Inc., for 2017 Prepare the statement one section at a time. (Use parentheses or a minus sign for numbers to be subtracted and decreases in cash.) Majestic Travel Services, Inc. Statement of Cash Flows-Operating Activities Section (Indirect Method) For the Year Ended December 31, 2017 Derating Activities: e from any list or enter any number in the input fields and then click Check Answer

Answer 1

Statement of cash flows is prepared for a reporting period for analyzing reasons for change in cash balance between two reporting periods. It is broadly categorised into operating activities, investing activities and financing activities. Out of the three, operating activities specifically helps to analyze reason for change in cash balance due to operating activities of the business. There are two methods to prepare operating activities block such as direct and indirect method. Under direct method, operating activities block contains data of cash received from sale of goods or services and cash paid to suppliers, vendors for services, interest expense and income taxes. It means that non-cash incomes or expenses and net income reported for the period are not considered under direct method while preparing statement of cash flows. Majestic Travel Services, Inc. Statement of Cash flows - Operating Activities Section (Indirect Method) For the Year Ended December 31, 2017 Operating Activities: Net Income $40,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Expense $5,000 (Non-cash expense and so added back --> $19,000 - $14,000 = $5,000] Loss on Sale of Land $3,600 [Non-cash expense and so added back --> ($116,000-$105,000)-$7400=$3,600] Decrease in Accounts Receivables $7,000 ($82,000 - $75,000; Working capital decreases and so added] Increase in Inventory $38,000 [$22,000 - $60,000; Working capital increases and so deducted] Decrease in Prepaid Expense $2,000 ($17,000 - $15,000; Working capital decreases and so added] Decrease in Accounts Payable -$8,000 [$24,000 - $32,000; Working capital increases and so deducted] Increase in Wages payable $15,000 ($33,000 - $18,000; Working capital decreases and so added] Increase in Interest payable $1,000 ($14,000 - $13,000; Working capital decreases and so added] Increase in Income Taxes payable $2,000 ($12,000 - $10,000; Working capital decreases and so added] Net cash flow from operating activities $29,600