15. Nordstrand Company’s net income last year was $36,000. Changes in selected b

Question

15. Nordstrand Company’s net income last year was
$36,000. Changes in selected balance sheet accounts for the year appear below:
Increases
Debit balances: (Decreases)
Accounts receivable . . . . . . . . . . . . . . . . . . . . . $ (7,000)
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,000)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . $ 3,000
Credit balances:
Accumulated depreciation . . . . . . . . . . . . . . . . $18,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . $13,000
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . $ (9,000)
Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 0
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,000

Based solely on this information, the net cash provided by operations under the indirect method on the state-ment of cash flows would be how much?

Explanation / Answer

Alright, this isn't technically a managerial accounting question it's financial accounting...anyways here you go. The indirect method for Cash Flows has us start with Net Income, and then make a series of adjustments to take that accrual net income and convert it to Cash Flow from operations. Income 36,000 +AR Decrease 7,000 *think if AR went down we must have gotten extra cash for it. +Inventory Decrease 5,000 *for inventory, if it goes down we must have gotten something for it -Prepaid Expenses 3,000 * we had to pay for them so they're negative +Depreciation 18,000 *always a noncash expense that is added back +Accounts Payable 13,000 *if it went up we got to borrow extra money, positive inflow -Accrued Liabilities 9,000 *we must have paid some extra bills, outflow +Deferred taxes 1,000 I'm assuming this is a deferred tax non cash charge, DR tax expense CR deferred tax liability/benefit, that would make this a noncash expense and it should be added back. I bet your problem gave you some more detail here. That leaves us with Cash Flow of 68,000 The key to cash flow problems, especially the indirect method is to be able to reason through the problem. I included the way I think about the change in each account...Goodluck!

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