Problem

Reporting Operating Cash Flows by the Indirect MethodUsing the information presented in Pr...

Reporting Operating Cash Flows by the Indirect Method

Using the information presented in Problem 13.4A, prepare a partial statement of cash flows for the current year, showing the computation of net cash flows from operating activities by the indirect method. Explain why the decline in accounts receivable over the year was added to net income in computing the cash flows from operating activities.

Problem 13.4A

Reporting Operating Cash Flows by the Direct Method

The following income statement and selected balance sheet account data are available for Treece, Inc., at December 31, 2015:

TREECE, INC.
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2015
Revenue:
Net sales		$2,850,000
Dividend income		104,000
Interest income		70,000
Gain on sales of marketable securities		4,000
Total revenue and gains		$3,028,000
Costs and expenses:
Cost of goods sold	$1,550,000
Operating expenses	980,000
Interest expense	185,000
Income tax expense	90,000
Total costs and expenses		2,805,000
Net income		$ 223,000
	End of Year	Beginning of Year
Selected account balances:
Accounts receivable	$ 650,000	$ 720,000
Accrued interest receivable	9,000	6,000
Inventories	800,000	765,000
Short-term prepayments	20,000	15,000
Accounts payable (merchandise suppliers)	570,000	562,000
Accrued operating expenses payable	65,000	94,000
Accrued interest payable	21,000	12,000
Accrued income taxes payable	22,000	35,000

Additional Information

1. Dividend revenue is recognized on the cash basis. All other income statement amounts are recognized on the accrual basis.
2. Operating expenses include depreciation expense of $115,000.

Instructions

a. Prepare a partial statement of cash flows, including only the operating activities section of the statement and using the direct method. Place brackets around numbers representing cash payments. Show supporting computations for the following:
1. Cash received from customers.
2. Interest and dividends received.
3. Cash paid to suppliers and employees.
4. Interest paid.
5. Income taxes paid.
b. Management of Treece, Inc., is exploring ways to increase the cash flows from operations. One way that cash flows could be increased is through more aggressive collection of receivables. Assuming that management has already taken all the steps possible to increase revenue and reduce expenses, describe two other ways that cash flows from operations could be increased.