Question

) What is the purpose of the statement of cash flows? What information does it provide?

(b) Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2018, for Vancare Company, using (1) the indirect method (2) the direct method.

Vancare Company Income Statement For the year ended December 31, 2018
Sales revenue		$6,900,000
Cost of goods sold
Beginning inventory	$1,900,000
Purchases	$4,400,000
Goods available for sale	$6,300,000
Ending inventory	$1,600,000
Cost of goods sold		$4,700,000
Gross Profit		$2,200,000
Operating expenses
Selling expense	$ 450,000
Administrative expense	$ 700,000	$1,150,000
Net Income		$1,050,000

Additional information:

1. Accounts receivable decreased $310,000 during the year.

2. Prepaid expenses increased $170,000 during the year.

3. Accounts payable to suppliers of merchandise decreased $275,000 during the year.

4. Accrued expenses payable decreased $120,000 during the year.

5. Administrative expenses include depreciation expense of $60,000.

Answer 1

Correct Answer:

Vancare company
Statement of cash flows (Indirect Method)
For year ended Dec 31 2018
A. Cash Flows from Operating Activity
Net Income		$ 1,050,000.00
Adjustments to reconcile net income to net cash provided by operating activities
Income statement items not affecting cash
Depreciation expense	$      60,000.00
Gain on sale of Equipment
Changes in Current operating assets and liabilities
Decrease in Accounts receivables	$    310,000.00
Increase in Prepaid Expenses	$ (170,000.00)
Decrease in Accounts Payable	$ (275,000.00)
Accrued expenses decreased	$ (120,000.00)
		$    (195,000.00)
Net cash flow from Operating activities		$      855,000.00

End of answer.

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