RASHID CORPORATION INCOME STATEMENT FOR YEAR ENDED DEC 31 2007 SALES $504,000 CO

Question

RASHID CORPORATION
INCOME STATEMENT
FOR YEAR ENDED DEC 31 2007

SALES                                                  $504,000
COSTS OF GOODS SOLD      $327,600
DEPRECIATION EXPENSE      42,000
OTHER OPERATING EXPENSE 125,500    (495,100)
OTHER GAINS (LOSSES)
GAIN ON SALE OF EQUIPMENT                     7,200
INCOME BEFORE TAXES                              16,100
INCOME TAX EXPENSE                               (4,800)
NET INCOME                                            $11,300

RASHID CORPORATION
BALANCE SHEETS
AT DEC 31

ASSETS                                  2007              2006
CASH                                    64,650         55,800
ACCOUNTS RECEIVABLE          21,000          29,000
INVENTORY                            58,000        52,100
EUQIPMENT                            240,000        222,000
ACCUMULATED DEPRECIATION (106,000)    (96,000)
TOTAL ASSETS                        227,650      $262,900

LIABILITIES
ACCOUNTS PAYABLE                28,400         23,700
INCOME TAX ES PAYABLE           1,050           1,200
TOTAL LIABILITIES                   29,450         24,900

EQUITY
COMMON STOCK                       $106,000   106,000
CONTRIBUTED CAPITAL
IN EXCESS PAR                            18,000      18,000
RETAINED EARNINGS                  124,200     114,000
TOTAL EQUITY                         $248,200   $238,000
TOTAL LIABILITIES AND EQUITY $277,650    $262,900

Explanation / Answer

Cash Flows from Operating Activities - Indirect Method

I'll let you add up the figures to get the total.

Since this is the indirect method, you start with net income and reconcile it to the net operating cash flows. Depreciation Expense and the Gain on Sale of Equipment are non-cash items, so they are added back. After that, you look for the changes in current assets (NOT including cash) and current liabilities. You add back increases in current liabilities and decreases in current assets. You subtract increases in current assets and decreases in current liabilities.

Remember, the "operating activities" section of a statement of cash flows is the only section that is different when comparing the direct method with the indirect method. The investing activities and financing activities sections are the same regardless of the method.

Net Income
 $11,300 Increase in Depreciation Expense
           42,000 Gain on Sale of Equipment
             7,200 Decrease in Acct. Receivable
             8,000 Increase in Inventory
           (5,900) Increase in Acct. Payable
             4,700 Net Cash Flows from Operating Activities
 $XX,XXX

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