Question

the direct method. E12-22 (Chapter Supplement A) Reporting and Interpreting Cash Flows from Operating Activities from an Analyst's Perspective (Direct Method) Refer to the information for Rodriguez Company in Exercise 12-8. Required: 1. Present the operating activities section of the statement of cash flows for Rodriguez Company using the direct method. Assume that other accrued liabilities relate to other expenses on the income statement. 2. What were the major reasons that Rodriguez was able to report a net loss but positive cash flow from operations? Why are the reasons for the difference between cash flow from operations and net income important to financial analysts?

Information from 12-8:

Please answer question 1&2 from problem E12-22, show all work.

Answer 1

1.

cash flow from operating activities:
particulars	amount($)
cash received -service revenue	54000
collection from debtors(13000-8000)	5000
less:expenses paid
salaries(1000+46000-12000)	35000
other expenses(2800+9700-1000)	11500
purchase of service machine	5000
net cash flow from operating activities	7500

note:a)the company is engaged in providing services,hence the purchase of small service machine is treated as operating expenses.

b)salaries paid arrived by adjusting outstanding as at opening and closing date.

2.the reasons for the net loss and positive cash balance for the company is:-

a)depreciation is charged as expenses ,it causes redution in net profit,but it will not affect the cash flow because of there no cash out flow in relation to depreciation.

b)the sameway amortization of copy rights also causes for redution to net income but it will not affect cash flow as there is no cash outflow in relation to it.