Question

QUESTION 1 Given the following income statement and balance sheet data, select which items would be included in presenting the cash flow from operating activities section of the statement of cash flows using the indirect method: 2019 $50,000 33,400 16,600 13,600 920 Income Statement ($ millions) Sales Less: Cost of goods sold Gross profits Less: Cash operating expenses Less: Depreciation expense Less: Amortization of intangible assets Operating profits (EBIT) Less: Interest expense Equity in earnings (loss) of affiliate Gain (loss) on sale of fixed assets Earnings before tax expense Income tax expense Net income 2,000 290 (50) 1,740 540 $1,200 Balance Sheet($ millions) Cash & equivalents Marketable securities Net receivables Inventories Other current assets Total current assets Gross fixed assets Less: Accum. depreciation Net fixed assets Investments in affiliates Intangible assets Other long-term assets Total assets 2019 2018 $500 $600 450 360 4,200 4,050 6,110 6,190 580 12,080 11,780 22,320 20,860 10,540 10,100 11,780 10,760 480 530 600 680 60 250 $25,000 $24,000 Accounts payable Other accrued expenses Current portion of long-term debt Short-term debt Other current liabilities Total current liabilities Long-term debt Deferred taxes Other long-term liabilities Total liabilities Common stock Additional paid-in capital Retained earnings Total stockholders' equity Total liabilities and equity 2019 2019 $1,820 $2,200 2,180 2,050 330 490 300 190 620 760 5,250 5,690 5,750 5,630 2,200 2,130 1,900 1,750 15,100 15,200 500 400 1,700 1,200 7.700 7,200 9.900 8.800 $25,000 $24,000

Answer 1

Items to be adjusted with the net profits for computing cash flows from operating activities

1. Add back depreciation expense of 920

2. Add back Amortization of intangible assets 80

3. subtract earnings recognized on Investments in affiliate (equity earnings of affiliates) of 50

4 subtract change in receivables of 150

5. Add change in inventories of 80

6. subtract change in other current assets of 240

7. subtract change in accounts payable of 380

8. add changes in accrued expense of 130

9 subtract change in current liabilities 140

10. Add change in deferred taxes of 70

11. add back interest expense of 290 (Note: Interest Expense shall be added back as per IFRS, however as per US GAAP there is no requirement of adding back of interest expenses)

12. add gain on sale of fixed assets 80

For the remaining items, there is no adjustment required to be made.