Question

For the just completed year, Hanna Company had net income of $101,500. Balances in the company's current asset and current liability accounts at the beginning and end of the year were as follows:

December 31
End of Year Beginning of Year
Current assets:
Cash $ 59,000 $ 82,000
Accounts receivable $170,000 $188,000
Inventory $442,000 $340,000
Prepaid expenses $11,500 $13,000
Current liabilities:
Accounts payable $352,000 $396,000
Accrued liabilities $9,000 $12,000
Income taxes payable $35,000 $26,000
The Accumulated Depreciation account had total credits of $54,000 during the year. Hanna Company did not record any gains or losses during the year.
Required:
1. Using the indirect method, determine the net cash provided by operating activities for the year. (List any deduction in cash and cash outflows as negative amounts.)

Answer 1

The net cash provided by operating activities for the year is $109,500.

Step-by-step explanation:

To determine the net cash provided by operating activities using the indirect method, we need to adjust the net income for non-cash expenses and changes in working capital. The formula is as follows:

Net cash provided by operating activities = Net income + Depreciation expense - Increase in accounts receivable - Increase in inventory + Increase in accounts payable - Increase in accrued liabilities + Increase in income taxes payable

Using the given information:

Net cash provided by operating activities = $101,500 + $54,000 - ($188,000 - $170,000) - ($340,000 - $442,000) + ($396,000 - $352,000) - ($12,000 - $9,000) + ($26,000 - $35,000) = $101,500 + $54,000 + $18,000 - $102,000 + $44,000 + $3,000 - $9,000 = $109,500

Answer 2

Hanna Company's Net cash flow from operating activities is $35,000

Step-by-step explanation:

Net Income for the year $101,500

Adjustment of Non Cash Expenses:

Depreciation $54,000

Decrease in Prepaid Expenses $1,500

Decrease in Accrued Liabilities $(3,000)

Increase in Tax Payable $9,000

Operating profit before working capital changes $163,000

Working Capital Changes:

Increase in Inventory $(102,000)

Decrease in Accounts Receivables $18,000

Decrease in Accounts Payable $(44,000)

Net cash from operating activities $35,000

Please note that figures in brackets represent Cash Outflows (negative values)