Question

Pronghorn Company’s income statement for the year ended December 31, 2020, contained the following condensed information. Service revenue $841,000 Operating expenses (excluding depreciation) $624,000 Depreciation expense 59,000 Loss on sale of equipment 25,000 708,000 Income before income taxes 133,000 Income tax expense 40,000 Net income $93,000 Pronghorn’s balance sheet contained the following comparative data at December 31. 2020 2019 Accounts receivable $35,000 $53,000 Accounts payable 41,000 31,000 Income taxes payable 3,800 8,000 (Accounts payable pertains to operating expenses.) Prepare the operating activities section of the statement of cash flows using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Answer 1

Answer and Explanation:

The preparation of the operating activities section of the cash flow statement using the indirect method is presented below:

According to the scenario, The presentation is as follows

Cash flow from operating activities

Net income $93,000

Add - Loss on sale of investment $25,000

Add - Depreciation expense $59,000

Add - Decrease in Accounts receivable($53,000-$35,000) $18,000

Add - Increase in Accounts payable($41,000-$31,000) $10,000

Less - decrease in Income tax payable($3800-$8000) (4,200)

Net cash provided by the operating activities $200,800

The inflow of cash represents in the positive sign and outflow of cash represents in the negative sign