Question

2. Cash flows from operating activities (indirect and direct methods). Presented below is the income statement of Cowan, Inc.: $380,000 Sales revenue 225,000 $155,000 Cost of goods sold Gross profit Operating expenses Income before income taxes 95.000 60,000 24.000 S 36,000 Income taхes Net income In addition, the following information related to net changes in working capital is presented: Credit Debit $12,000 25,000 Cash Accounts receivable Inventories Salaries payable (operating expenses) Accounts payable Income taxes payable $19,400 8,000 14,000 3,000 The company also indicates that depreciation expense for the year was $16,700 and that the deferred tax liability account increased $2,600. Instructions Prepare a schedule computing the net cash flow from operating activities that would be shown on a statement of cash flows: (a) using the indirect method.

Answer 1

Statement of Cash Flows - Indirect Approach
	Amount in $	Amount in $
Net income		$             36,000
Cash flows from operating activities
Adjustments for reconcile the net income to:
Depreciation	$             16,700
Increase in Account Receivable	$            -25,000
Decrease in inventories	$             19,400
Decrease in salary payable	$              -8,000
Increase in account payable	$             14,000
Decrease in income tax payable	$              -3,000
Deferred tax Liability increased	$                2,600
		$             16,700
Net cash from operating activities		$             52,700