Exercise 12-2 Net Cash Provided by Operating Activities [L012-2] For the just co

Question

Exercise 12-2 Net Cash Provided by Operating Activities [L012-2] For the just completed year, Hanna Company had net income of $55,000. Balances in the company's current asset and current liability accounts at the beginning and end of the year were as follows: December 31 Beginning of Year End of Year Current assets $ 59,000 S 81,000 $ 152,000 S 188,000 $ 439,000 S 361,000 $ 12,000 S 13,000 Cash Accounts receivable Prepaid expenses Current liabilities Accounts payable Accrued liabilities Income taxes payable $ 364,000 S 388,000 $ 7,500 S 12,000 S 34,000 S 29,000 The Accumulated Depreciation account had total credits of $48,000 during the year. Hanna Company did not record any gains or losses during the year Required Use the indirect method to determine the net cash provided by (or used in) operating activities for the year (List any deduction in cash and cash outflows as negative amounts.) Hanna Company Statement of Cash Flows-Indirect Method (partial) Net income Adjustments to convert net income to a cash basis Net cash provided by (used in) operating activities

Explanation / Answer

Hanna Company

Statement of Cash Flows - Indirect Method (Partial)

Note: Whenever there is a debit to depreciation expense, accumulated depreciation account is credited. So, credit to accumulated depreciation means that depreciatione expense has been incurred. So, it being a non cash expense is added back to net income.

Net Income $55000 Adjusments to convert net income to cash basis: Add: Depreciation (non cash expense) $48000 Add: Decrease in Accounts receivable 36000 Decrease in prepiad expense 1000 Increase in Income Tax Payable 5000 Less: Increase in Inventory (78000) Decrease in Accounts payable (24000) Decrease in accrued liabilities (4500) (16500) Net cash provided by operating activities $38500

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