Question

IIIII

Use the income statement for Hargrove Dynamics, Inc., for the past year ended December 31, 2011, and the information from the comparative balance sheet shown for the beginning and the end of the year to prepare the cash from operating activities section of the statement of cash flows using the indirect method. What the similarities? What are the differences? Which statement is most informative? (Click the icon to view the income statement.) i Data Table Data Table : (Click the icon to view the balance sheets.) (Click the icon to view the direct method cash flow statement.) Hargrove Dynamics, Inc. Income Statement For the Year Ended December 31, 2011 Hargrove Dynamics, Inc. Statement of Cash Flows For the Year Ended December 31, 2011 Selected accounts from the balance sheet: Account Beginning of the Year End of the Year Accounts receivable $ 5,000 $ 15,000 Inventory 32,000 12,500 Prepaid insurance 1,500 500 Accounts payable 12,000 17,500 Wages payable 1,850 1,600 Utilities payable 500 Sales ........ ...........$ 120,000 40,000 80,000 Cash from operating activities Cost of goods sold..... Gross margin Operating expenses Wages Rent Utilities. X Add: * Data Table 7,500 10,200 4,800 1,500 Deduct: Insurance ..... 24,000 56,000 $ Hargrove Dynamics, Inc. Statement of Cash Flows Net Income For the Year Ended December 31, 2011 Net cash provided by operating activities Print Done What are the similarities? The similarity between the statements are What are the differences? The differences between the statements are Cash from operating activities Cash collected from customers Cash paid for inventory Cash paid for insurance Cash paid for wages Cash paid for utilities Cash paid for rent Net cash provided by operating activities 110,000 (15,000) (500) (7,750) (5,300) (10,200) Which statement is most informative? The statement using the | method because it gives a clearer picture of the sources of cash. ... $ 71,250 Choose from any list or enter any number in the input fields and then continue to the next question.

Answer 1

Solution

Hargrove Dynamics

Cash from operating activities section of the statement of cash flows (indirect method):

Hargrove Dynamics Inc
Statement of Cash Flows (Partial)
For the Year Ended December 31, 2011
Cash flow from operating activities:
Net Income		$56,000
Adjustments to reconcile net income to net cash flow from operations:
Add: Decrease in inventory	$19,500
Add: decrease in prepaid insurance	$1,000
Add: increase in accounts payable	$5,500
Less: increase in accounts receivable	($10,000)
Less: decrease in wages payable	($250)
Less: decrease in utilities payable	($500)	$15,250
Cash flow from operating activities:		$71,250

What are the similarities?

The similarities between the statements are the cash flow from operating activities is same.

What are the differences?

The differences between the statements are –

Indirect method uses net income and adds all non-cash expenses and losses, deducts all non-cash gains as well as provides for net adjustment to current assets and current liabilities.

Direct method uses only cash expensed and cash received.

Which statement is more informative –

The direct method is more accurate as it provides sources of cash.