Question

Salud Company reports the following information. Use the indirect method to prepare only the operating activities section of its statement of cash flows for the year ended December 31, 2017. (Amounts to be deducted should be indicated with a minus sign.)

Selected 2017 Income Statement Data Selected Year-End 2017

Net income $455,000 Accounts receivable increase $52,800
Depreciation expense 95,500 Prepaid expenses decrease 17,400
Gain on sale of machinery 26,300 Accounts payable increase 6,200
Wages payable decrease 2,100

Answer 1

Cash flow from Operating Activities

Net income $455,000

Adjustments for non-cash items :

Depreciation expense $95,500

Gain on sale of machinery ($26,300)

Adjustment for Changes in Working Capital :

Increase in Accounts receivable ($52,800)

Decrease in Prepaid expenses $17,400

Increase in Accounts payable $6,200

Decrease in Wages payable $2,100

Net Cash from Operating Activities $497,100

Step-by-step explanation:

The Indirect method adjusts the Profit before tax with the following items :

1. Non-cash items previously added or deducted from net income
2. Changes in Working Capital