Question

Suppose your company reports $160 of net income and $40 of cash dividends paid, and its comparative balance sheet indicates the following.Beginning EndingCash $ 35$ 205Accounts Receivable 751 75Inventory 245 135Total 355 $515Salaries and wages payable $ 10 $50Common stock 100 100Retained Earning 245 365Total $ 355$ 515RequiredPrepare the operating activates section of the statement of cash flows, using the indirect method.Identify the most important cause of the differences between the company’s net income and the new cash flow operating activities.

Answer 1

Operating Activities:

Net Income $160

Adjustments:

Decrease in Accounts Receivable $(76)

Decrease in Inventory $(110)

Increase in Salaries and Wages Payable $40

Net Cash Provided by Operating Activities $114

The most important cause of the differences between the company’s net income and the new cash flow operating activities is the decrease in Inventory. This decrease in Inventory is not accounted for in the net income figure, but is accounted for in the cash flow operating activities.