Homework Answers
Solution:
Requirement A: Cash flows from Operating Activities section
| Statement of Cash flows - Operating Activities | ||
| Cash flows from operating activities: | ||
| Net income | $ 334,100 | |
| Adjustments to reconcile to operating cash flow | ||
| Depreciation expense | $ 101,710 | |
| Decrease in Account Receivables | $ 6,910 | |
| Increase in Inventory | $ (16,640) | |
| Decrease in Prepaid Expenses | $ 1,980 | |
| Increase in Salaries Payable | $ 1,880 | |
| Decrease in Account Payable ( Merchandise creditors) | $ (7,570) | $ 88,270 |
| Net cash flows from operating activities | $ 422,370 | |
Requirement B:
Yes, Net cash flows from operating activities will be the same even we use direct method.
Reason:
1) The main differences between the both method is presentation of cash flows in operating section.
2) Direct method starts with by taking cash transactions into consideration
3) Where as indirect method starts from net income and make on adjusting non cash activities and current assets and liabilities.
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