Q14-5SE - Horngren'S Financial And Managerial Accounting

Question

Question: Computing cash flows from operating activities—indirect method

 Winding Road Cellular accountants have assembled the following data for the year ended April 30, 2018: 

Cash receipt from sale of land \( 27,000

 Net income \) 55,000 

Depreciation expense 2,000 

Cash purchase of equipment 44,000 

Cash payment of dividends 5,800 

Decrease in current liabilities 20,000 

Cash receipt from issuance of common stock 17,000 

Increase in current assets other than cash 27,000

 Prepare the operating activities section using the indirect method for Winding Road Cellular’s statement of cash flows for the year ended April 30, 2018.

Step-by-Step Solution

Answer

Answer

 

Net cash provided by operating activities is $10,000

Step 1: 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.

Step 2: Cash flow from operating activities

Cash flows from operating activities
Net Income		$55,000
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation expense	$2,000
Increase in current assets other than cash	($27,000)
Decrease in current liabilities	($20,000)
Net cash provided by operating activities		$10,000