The income statement disclosed the following items for 2013: Deprecation expense

Question

The income statement disclosed the following items for 2013: Deprecation expense $21,600 Gain on disposal of equipment $12,600 Net Income $190,500 Balances of the current assets and current liability accounts changed between December 31, 2012, and December 31, 2013, as follows: Accounts recivable $3,360 Inventory $1,920* Prepaid Insurance $720* Accounts payable $2,280* Income taxes payable $720 Dividends payable $510 *Decrease a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method. Use the minus sign to indicate any cash outflows or negative amounts. b. Briefly explain why cash flows from operating activities is different than net income.

Explanation / Answer

Net income: $190500 Depreciation expenses: $21600 Gain on disposal of equipment: -$12600 Increase in Acc Receivables: -$3360 Decrease in Inventory: $1920 Decrease in Prepaid Insurance: $730 Decrease in Acc Payable: -$2280 Increase in Income taxes payable: $720 Decrease in Dividend Payable: -$510 Cash flow from operating activities: $196720 (b) Net income include some components which are non-cash based, such as depreciation and gain on disposal of equipment. In cash flows from operating activities, these components are excluded. Hope this helps!

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