20E - Horngren'S Financial And Managerial Accounting

Question

Computing operating activities cash flow—indirect method 

The accounting records of CD Sales, Inc. include the following accounts: Account                                 Beginning Balance         Ending Balance Cash                                                    \( 7,500                                \) 6,500        Accounts Receivable                           21,000                                17,500 Merchandise Inventory                        20,000                                30,000        Accounts Payable                                15,000                                19,000     Accumulated Depreciation— Equipment 

2,000 Depr. Exp. 

56,000 Jul. 1  

58,000 Jul. 31 

Retained Earnings 

Dividends 15,000

63,000 Jul. 1

50,000 Net Inc. 

98,000 Jul. 31 

Compute CD’s net cash provided by (used for) operating activities during July 2018. Use the indirect method.

Step-by-Step Solution

Answer

Net cash provided by operating activities is $16,000.

Cash flow from operating activities- Indirect method

Indirect method starts with net income and adjustments are made to reconcile net income to net cash provided by operating activities.

Cash flow from operating activities

Cash flows from operating activities
Net Income		$50,000
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation expense	$2,000
Decrease in account receivables	$3,500
Increase in merchandise inventory	($10,000)
Increase in accounts payable	$4,000
Net cash provided by operating activities		$49,500