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Chapter 23: Q10BE (page 1374)

Hendrickson Corporation reported net income of \(50,000 in 2017. Depreciation expense was \)17,000. The following working capital accounts changed.

Accounts receivable $11,000 increase

Available-for-sale debt securities 16,000 increase

Inventory 7,400 increase

Nontrade note payable 15,000 decrease

Accounts payable 12,300 increase

Compute net cash provided by operating activities.

Short Answer

Expert verified

The net cash provided by operating activities is computed as $60,900

Step by step solution

01

Definition of net Income

The net income of the business is defined as the income earned by the company after deducting all the expenses from the revenues generated during the period.

02

Computation of net cash provided by operating activities

Cash flows from Operating Activities

Net Income

$50,000

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation Expense

17,000

Increase in accounts payable

12,300

Increase in accounts receivables

-11,000

Increase in Inventory

-7,400

10,900

Net cash provided by operating activities

$60,900

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Most popular questions from this chapter

Question:(SCF—Indirect Method) The following are Sullivan Corp.’s comparative balance sheet accounts at December 31, 2017 and 2016, with a column showing the increase (decrease) from 2016 to 2017.

Comparative Balance Sheet

2017

2016

Increase (Decrease)

Cash

\(815,000

\)700,000

\(115,000

Accounts receivable

1,128,000

1,168,000

(40,000)

Inventory

1,850,000

1,715,000

135,000

Property, plant and equipment

3,307,000

2,967,000

340,000

Accumulated depreciation

(1,165,000)

(1,040,000)

(125,000)

Investment in Myers Co

310,000

275,000

35,000

Loan receivable

250,000

-

250,000

Total assets

\)6,495,000

\(5,785,000

\)710,000

Account payable

\(1,015,000

\)955,000

\(60,000

Income taxes payable

30,000

50,000

(20,000)

Dividend payable

800,000

100,000

(20,000)

Lease liability

400,000

-

400,000

Common stock, \) 1 par value

500,000

500,000

0

Paid-in-capital in excess of par – common stock

1,500,000

1,500,000

0

Retained earnings

2,970,000

2,680,000

290,000

Total liabilities and stockholders equity

\(6,495,000

\)5,785,000

\(710,000

Additional information:

1. On December 31, 2016, Sullivan acquired 25% of Myers Co.’s common stock for \)275,000. On that date, the carrying value of Myers’s assets and liabilities, which approximated their fair values, was \(1,100,000. Myers reported income of \)140,000 for the year ended December 31, 2017. No dividend was paid on Myers’s common stock during the year.

2. During 2017, Sullivan loaned \(300,000 to TLC Co., an unrelated company. TLC made the first semi-annual principal repayment of \)50,000, plus interest at 10%, on December 31, 2017.

3. On January 2, 2017, Sullivan sold equipment costing \(60,000, with a carrying amount of \)38,000, for \(40,000 cash.

4. On December 31, 2017, Sullivan entered into a capital lease for an office building. The present value of the annual rental payments is \)400,000, which equals the fair value of the building. Sullivan made the first rental payment of \(60,000 when due on January 2, 2018.

5. Net income for 2017 was \)370,000.

6. Sullivan declared and paid the following cash dividends for 2017 and 2016.

2017

2016

Declared

December 15, 2017

December 15, 2016

Paid

February 28, 2018

February 28, 2018

Amount

\(80,000

\)100,000

Instructions

Prepare a statement of cash flows for Sullivan Corp. for the year ended December 31, 2017, using the indirect method.

Krauss Company’s income statement for the year ended December 31, 2017, contained the following condensed information.

Service revenue \(840,000

Operating expenses (excluding depreciation) \)624,000

Depreciation expense 60,000

Loss on sale of equipment 26,000 710,000

Income before income taxes 130,000

Income tax expense 40,000

Net income \( 90,000

Krauss’s balance sheet contained the following comparative data at December 31.

2017 2016

Accounts receivable \)37,000 $54,000

Accounts payable 41,000 31,000

Income taxes payable 4,000 8,500

(Accounts payable pertains to operating expenses.)

Instructions Prepare the operating activities section of the statement of cash flows using the direct method.

Data for Krauss Company are presented in E23-5.

Instructions

Prepare the operating activities section of the statement of cash flows using the indirect method.

Why is it necessary to convert accrual-based net income to a cash basis when preparing a statement of cash flows?

The balance sheet data of Brown Company at the end of 2017 and 2016 follow.

2017 2016

Cash \( 30,000 \) 35,000

Accounts receivable (net) 55,000 45,000

Inventory 65,000 45,000

Prepaid expenses 15,000 25,000

Equipment 90,000 75,000

Accumulated depreciation—equipment (18,000) (8,000)

Land 70,000 40,000

\(307,000 \)257,000

Accounts payable \( 65,000 \) 52,000

Accrued expenses 15,000 18,000

Notes payable—bank, long-term –0– 23,000

Bonds payable 30,000 – 0–

Common stock, \(10 par 189,000 159,000

Retained earnings 8,000 5,000

\)307,000 \(257,000

Land was acquired for \)30,000 in exchange for common stock, par \(30,000, during the year; all equipment purchased was for cash. Equipment costing \)10,000 was sold for \(3,000; book value of the equipment was \)6,000. Cash dividends of $10,000 were declared and paid during the year.

Instructions

Compute net cash provided (used) by:

(a) Operating activities.

(b) Investing activities.

(c) Financing activities.
See all solutions

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