Question

Portions of the financial statements for Peach Computer are provided below.

PEACH COMPUTER
Income Statement
For the year ended December 31, 2021
Net sales $1,925,000
Expenses:
Cost of goods $1,100,000
sold
Operating expenses 610,000
Depreciation expense 55,000
Income tax expense 45,000
Total expenses 1,810,000
Net income $ 115,000
PEACH COMPUTER
Selected Balance Sheet Data
December 31
Increase (I) or Decrease
2021 2020 (D)
Cash $107,000 $87,500 $19,500 (I)
Accounts receivable 45,500 51,500 6,000 (D)
Inventory 80,000 57,500 22,500 (I)
Prepaid rent 3,500 6,000 2,500 (D)
Accounts payable 50,000 39,500 10,500 (I)
Income tax 5,500 12,500 7,000 (D)
Required: Prepare the operating activities section of the statement of cash flows for Peach Computer using the indirect method. (List cash outflows and any decrease in cash as negative amounts.)

Answer 1

Cash flow from Operating Activities

Net income 115,000

Add Depreciation 55,000

Add Income tax 45,000

Decrease in Accounts receivable 6,000

Increase in Inventory (22,500)

Decrease in Prepaid rent 2,500

Increase in Accounts payable 10,500

Cash Generated from Operations 211,500

Income tax paid (38,000)

Net Cash from Operating Activities 173,500

Explanation :

The operating activities section of the statement of cash flows shows the Cashflow results from the Operating or Normal trading business of the organization.