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Chapter 14: Q27E (page 780)

Preparing operating activities cash flow—direct method

The accounting records of Four Seasons Parts reveal the following:

Payment of salaries and wages \( 34,000

Net income \) 21,000

Depreciation expense 10,000

Payment of income tax 16,000

Payment of interest 17,000

Collection of dividend revenue 5,000

Payment of dividends 5,000

Payment to suppliers 51,000

Collections from customers 116,000

Compute cash flows from operating activities using the direct method for the year ended December 31, 2018.

Short Answer

Expert verified

Net cash provided by operating activities is $3,000.

Step by step solution

01

Step-by-Step SolutionStep 1: Cash flow from operating activities

Cash flows from operating activities

Receipts:

Collection from customers

$116,000

Collection of dividend revenue

$5,000

Payments:

To suppliers

($51,000)

To employees

($34,000)

For income tax

($16,000)

For Interest

($17,000)

Net cash provided by operating activities

$3,000

02

Treatment of net income

Net income is used while preparing cash flow statement by indirect method.

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Most popular questions from this chapter

Question: Owl, Inc.’s accountants have assembled the following data for the year ended December 31, 2018: Cash receipt from sale of equipment \( 20,000

Depreciation expense 12,000

Cash payment of dividends 4,000

Cash receipt from issuance of common stock 12,000

Net income 30,000

Cash purchase of land 25,000

Increase in current liabilities 10,000

Decrease in current assets other than cash 8,000

Prepare Owl’s statement of cash flows using the indirect method for the year ended December 31, 2018. Assume beginning and ending Cash are \)12,000 and $75,000 respectively

Question: Describe the five steps used to prepare the statement of cash flows by the indirect method.

Using a spreadsheet to prepare the statement of cash flows—indirect method Use the Boost Plus, Inc. data in Exercise E14-21 to prepare the spreadsheet for the 2018 statement of cash flows. Format cash flows from operating activities by the indirect method.

Question: What should the net change in cash section of the statement of cash flows always reconcile with?

Question: If a company experienced a loss on disposal of long-term assets, how would this be reported in the operating activities section of the statement of cash flows when using the indirect method? Why?
See all solutions

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