Question

P4-7 Understanding the relation between income statement, cash flow state- ment, and changes in balance sheet accounts (LO 4-5, LO 4-6, LO 4-8) The following cash flow information pertains to the 20X1 operations of Fishmaster, Inc., a maker of fishing equipment. Cash collections from customers $ 79,533 Cash payments to suppliers of inventory 64.097 Cash payments for selling and administrative expenses 12,536 Cash payments for interest 1,548 Cash payments for income taxes 980 Cash provided by operating activities 372 1 rev47848 ch04 001-050.indd 42 10/18/19 06:56 PM 1 Confirming Pages Problems / Discussion Questions 4-43 The following additional information comes from Fishmaster's 20X1 income statement: Net income Depreciation of equipment $ 2,401 6.380 The following additional information comes from Fishmaster's 20X0 and 20X1 comparative balance sheets (decreases are in parentheses): Change in accounts receivable Change in inventory Change in accounts payable Change in accrued selling and administrative expenses Change in taxes payable Change in accrued interest payable $ 1,850 5.299 (1,711) 910 (342) (117) Required: 1. Use the preceding information to derive Fishmaster's 20X1 income statement. 2. Use the same information compute Fishmaster's 20X1 cash flow from operating activi- ties under the indirect method (that is, derive cash flow from operating activities by mak- ing the necessary adjustments to net income). 3. Provide a brief explanation for the difference observed between net income and cash pro- vided by operating activities.

Answer 1

1.

Income Statement
Sales Revenue	$          81,383	=79533+1850
Cost of Goods Sold	$          57,087	=64097-5299-1711
Gross Profit	$          24,296
Selling and administrative expenses	$          19,826	=12536+910+6380
Operating Income	$            4,470
Interest Expense	$            1,431	=1548-117
Income before income taxes	$            3,039
Income tax expense	$                638	=980-342
Net Income	$            2,401

2.

Cash Flow Statement
Indirect Method
Cash flow from Operating Activities
Net Income		$         2,401
Adjustments
Depreciation	$            6,380
Change In current assets & Liabilities
Increase in Accounts Receivable	$           (1,850)
Increase in Inventories	$           (5,299)
Decrease in Accounts payable	$           (1,711)
Increase in Accrued Liabilities	$                910
Decrease in Interest Payable	$              (117)
Decrease in Income Tax payable	$              (342)
Total Adjustments		$        (2,029)
Net Cash from operating activities		$             372

3.
There is difference in net income and cash provided due to depreciation being non cash expense and due to use of inventory more than purchases, excess payment of accounts payable and lower collection of sales.

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