Turn to Exercises on page 759 in the textbook and complete Part A of EX 16-6, Ca

Question

Turn to Exercises on page 759 in the textbook and complete Part A of EX 16-6, Cash flows from operating activities-indirect method, using the following table. If you had used the direct method in the previous exercise (#18), how would the result have been different? It would have been greater. It would have been smaller. It would have been the same. The net income reported on the income statement for the current year was $ 240,000. Depreciation recorded on equipment and a building amounted to $72,000 tor the year. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows: repare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method. If the direct method had been used, would the net cash flow from operating activities have been the same? Explain.

Explanation / Answer

yes,using direct method cash flow from operating activity will be same.

cash flow from operating activity Net income 240,000 Adjustment to reconcile net income to net cash provided by operating activity Depreciation 72000 Increase/decrease in current asset/liabilities Decrease in receivable (88800-84000) 4800 Increase in inventory   (150000-168000) (18000) Decrease in prepaid expense(10800 -9600) 1200 Decrease in payable (78000-72000) (6000) Increase in salaries payable (10200-12000) 1800 net cash provided by operating activity 295800

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