6. (TCO F) Cash flows from operating activities (indirect and direct methods). P
ID: 2371069 • Letter: 6
Question
6. (TCO F) Cash flows from operating activities (indirect and direct methods).
Presented below is the income statement of Smiling Tiger, Inc.
Sales
$1,020,000
Cost of goods sold
640,000
Gross profit
$380,000
Operating expenses
230,000
Income before income taxes
150,000
Income taxes
60,000
Net income
$90,000
In addition, the following information related to net changes in working capital is presented.
Debit
Credit
Cash
$50,000
Accounts receivable
34,500
Inventories
$25,000
Salaries payable (operating expenses)
60,000
Accounts payable
450,000
Income taxes payable
12,000
Depreciation expense for the year was $54,000
Deferred tax liability account increased $6,500
Required:
Prepare a schedule computing the net cash flow from operating activities that would be shown on a statement of cash flows:
(a)
using the indirect method.
(b)
using the direct method.
Sales
$1,020,000
Cost of goods sold
640,000
Gross profit
$380,000
Operating expenses
230,000
Income before income taxes
150,000
Income taxes
60,000
Net income
$90,000
In addition, the following information related to net changes in working capital is presented.
Debit
Credit
Cash
$50,000
Accounts receivable
34,500
Inventories
$25,000
Salaries payable (operating expenses)
60,000
Accounts payable
450,000
Income taxes payable
12,000
Depreciation expense for the year was $54,000
Deferred tax liability account increased $6,500
Required:
Prepare a schedule computing the net cash flow from operating activities that would be shown on a statement of cash flows:
(a)
using the indirect method.
(b)
using the direct method.
Explanation / Answer
Hi,
Please find the answer as follows:
Part A:
Part B:
Thanks.
Indirect Method Net Income 90000 Add Depreciation 54000 Increase in Accounts Receivables -34500 Decrease in Inventories 25000 Decrease in Salaries Payable -60000 Increase in Accounts Payable 450000 Decrease in Income Taxes Payable -12000 Increase in Deferred Tax Liability 6500 Net Cash From Operating Activities 519000
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