Question

The net income reported on the income statement for the current year was $318,700. Depreciation recorded on equipment and a building amounted to $93,980 for the year. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:

	End of Year	Beginning of Year
Cash	$90,370	$95,280
Accounts receivable (net)	111,660	118,570
Inventories	232,780	203,250
Prepaid expenses	12,000	15,310
Accounts payable (merchandise creditors)	96,420	104,940
Salaries payable	15,310	13,420

Required:

A.	Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. Use the minus sign to indicate cash outflows, cash payments, decreases in cash and for any adjustments, if required.
B.	If the direct method had been used, would the net cash flow from operating activities have been the same?

Amount Descriptions
Amortization of intangible assets
Decrease in accounts payable
Decrease in accounts receivable
Decrease in inventories
Decrease in prepaid expenses
Decrease in salaries payable
Depreciation
Increase in accounts payable
Increase in accounts receivable
Increase in inventories
Increase in prepaid expenses
Increase in salaries payable
Net cash flow from operating activities
Net cash flow used for operating activities
Net income
Net loss

A. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. Use the minus sign to indicate cash outflows, cash payments, decreases in cash and for any adjustments, if required.

Statement of Cash Flows (partial)

1	Cash flows from operating activities:
2
3	Adjustments to reconcile net income to net cash flow from operating activities:
4
5	Changes in current operating assets and liabilities:
6
7
8
9
10
11

B. If the direct method had been used, would the net cash flow from operating activities have been the same?

Answer 1

318,700 93,980 Statement of Cash Flows (Partial) Cash flows from Operating Activities Net income $ Adjustments to reconcile net income to net cash flow from operating activities: Depreciation expense $ Changes in current assets and current liabilities: Decrease in accounts receivable Increase in inventories Decrease in prepaid expenses Decrease in accounts payable Increase in salaries payable Net cash from operating activities 6,910 -29,530 3,310 -8,520 1,890 $ 386,740 Net cash flow from operating activities would have been same if direct method would had been used.