Question

E12-9 Reporting and Interpreting Cash Flows from Operating Activities from an Analyst's Perspective (Indirect Method) [LO 12-2, LO 12-5]

New Vision Company completed its income statement and balance sheet and provided the following information:

Service Revenue				$	66,000
Expenses:
Salaries and Wages	$	42,000
Depreciation		7,300
Utilities		6,000
Office		1,700			57,000
Net Income				$	9,000
Decrease in Accounts Receivable	$	12,000
Paid cash for equipment		5,000
Increase in Salaries and Wages Payable		9,000
Decrease in Accounts Payable		4,250

Required:

1. Present the operating activities section of the statement of cash flows for New Vision Company using the indirect method.
2. Of the potential causes of differences between cash flow from operations and net income, which are the most important to financial analysts?

Of the potential causes of differences between cash flow from operations and net income, which are the most important to financial analysts? (Select all that apply.)

	Changes in Management of Operating Activities Changes in Revenue and Expense Recognition Different Methods of Preparing Cash Flows and Income Statement.

Which of these causes (the three above) is the most important to financial analysts? (There could be more than one answer)

Answer 1

Answer 1

Cash Flow from Operating Activities
Net Income		$      9,000
Adjustments to be made
Depreciation	$      7,300
Decrease in Account receivable	$    12,000
Decrease in Account payable	$    (4,250)
Increase in Salaries and Wages payable	$      9,000
		$    24,050
Cash Flow from Operating Activities		$    33,050

Answer 2

Changes in Management of Operating Activities

In case of any doubt, please comment.