Question

The income statement of Martinez Company is shown below. MARTINEZ COMPANY INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2020

Sales revenue $6,380,000
Cost of goods sold
Beginning inventory $2,080,000
Purchases 4,350,000
Goods available for sale 6,430,000
Ending inventory 1,460,000
Cost of goods sold 4,970,000
Gross profit 1,410,000
Operating expenses
Selling expenses 430,000
Administrative expenses 670,000 1,100,000
Net income $310,000

Additional information:
1. Accounts receivable decreased $300,000 during the year.
2. Prepaid expenses increased $150,000 during the year.
3. Accounts payable to suppliers of merchandise decreased $280,000 during the year.
4. Accrued expenses payable decreased $110,000 during the year.
5. Administrative expenses include depreciation expense of $70,000.

Required:
Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2020, for Vince Gill Company, using the indirect method.

Answer 1

Cash flow from operating activities

Net income $310,000

Adjustment to reconcile net income to

net cash provided by operating activities

Depreciation expense $70,000

Decrease in account receivable $300,000

Decrease in inventory $620,000

Increase prepaid expense -$150,000

Decrease account payable -$280,000

Decrease accured expense payable -$110,000 $450,000

Net cash outflow from operating activities $760,000