The direct versus the indirect method to determine cash flow from operating activities
Top Brands, Inc. (TBI), presents its statement of cash flows using the indirect method. The following accounts and corresponding balances were drawn from TBI's 2012 and 2011 year-end balance sheets.
Account Title | 2012 | 2011 |
Accounts receivable | $24,000 | $26,000 |
Merchandise inventory | 56,000 | 52,000 |
Prepaid insurance | 19,000 | 24,000 |
Accounts payable | 23,000 | 20,000 |
Salaries payable | 4,600 | 4,200 |
Unearned service revenue | 1,000 | 2,700 |
The 2012 income statement is shown below:
Income Statement | ||
Sales | $ 603,000 |
|
Cost of goods sold | (383,000) |
|
Gross margin | 220,000 |
|
Service revenue | 4,000 |
|
Insurance expense | (40,000) |
|
Salaries expense | (160,000) |
|
Depreciation expense | (6,000) |
|
Operating income | 18,000 |
|
Gain on sale of equipment | 3,000 |
|
Net income | $ 21,000 |
|
Required
a. Prepare the operating activities section of the statement of cash flows using the direct method.
b. Prepare the operating activities section of the statement of cash flows using the indirect method.
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.