Q19E - Horngren'S Financial And Managerial Accounting

Question

Computing operating activities cash flow—indirect method 

The records of Vintage Color Engraving reveal the following: 

Net income \( 36,000

Depreciation expense \) 5,000 

Sales revenue 53,000 

Decrease in current liabilities 19,000 

Loss on sale of land 4,000

Increase in current assets other than cash 10,000 

Acquisition of land 35,000 

Compute cash flows from operating activities by the indirect method for year ended December 31, 2018.

Step-by-Step Solution

Answer

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

Step-by-Step Solution 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	Amount	Amount
Net Income		$36,000
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation expense	$5,000
Increase in current assets other than cash	($10,000)
Decrease in current liabilities	($19,000)
Loss on sale of land	$4,000
Net cash provided by operating activities		$16,000