(Supplement A) Reporting and Interpreting Cash Flows from Operating Activities from an Analyst's Perspective (Direct Method)
Refer to the following summarized income statement and additional selected information for Huanca, Inc.:
Income Statement |
|
Revenues | $ 146.500 |
Cost of sales | 55,500 |
Gross margin | 91,000 |
Salary expense | 56,835 |
Depreciation and amortization | 33,305 |
Other expense | 7,781 |
Net loss before tax | (6,921) |
Income tax expense | 2,561 |
Net loss | $(9,482) |
Other information: |
|
Decrease in receivables | $170 |
Decrease in inventories | 643 |
Increase in prepaid expenses | 664 |
Increase in accounts payable | 2.282 |
Decrease in accrued liabilities | 719 |
Increase in income taxes payable | 1.861 |
Required:
1. Based o n this in formation, compute cash flow from operating activities using the direct method.Assume that prepaid expenses and accrued liabilities relate to other expense.
2. What were the major reasons that Huunca’s was able to report a net loss but positive cash flow from operations? Why are there a sons for the difference between cash flows, from operations and net income important to financial analysts?
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