Changes in various accounts and gains and losses on the sale of assets during th

Question

Changes in various accounts and gains and losses on the sale of assets during the year for Argon Company are given below Item Accounts receivable Inventory Prepaid expenses Accounts payable Accrued liabilities Income taxes payable Sale of equipment Sale of long-term investments Amount $ 79,000 decrease $120,000 increase $ 3,500 decrease $ 41,000 decrease $ 9,600 increase s 15,700 increase s 8,100 gain s 12,200 loss Required: For each item, ndicate whether the dollar amount should be added to or deducted from net income under the indirect method when computing the net cash provided by operating activities for the year em Amount Effect $79,000 120,000 3,500 41.000 9.600 s15.700 8.100 12.200 Accounts receivable inventory Prepaid expenses Accounts payable Accrued liabilities Income taxes payable Sale of equipment Sale of long-term investments -_ _ S

Explanation / Answer

Following are the effect of changes in various accounts and gains/losses on the sale of assets under indirect method:

Notes:

1. When there is an increase in current assets, we will deduct the same under indirect method of cashflow or vice-versa.

2. When there is an increase in current liabilities, we will add the same under the indirect method of cashflow or vice-versa.

3. When there is non-operating gain, we will deduct the same under indirect method of cashflow or vice-versa.

Items Amount(in $) Effect(Add or Deduct) Accounts receivable 79,000 Add Inventory 120,000 Deduct Prepaid expenses 3,500 Add Accounts payable 41,000 Deduct Accrued liabilities 9,600 Add Income taxes payable 15,700 Add Sale of equipment 8,100 Deduct Sale of long-term investments 12,200 Add

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