Question

The income statement of Vince Gill Company is shown below.

VINCE GILL COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2017

Sales revenue
$6,900,000

Cost of goods sold
Beginning inventory
$1,900,000

Purchases
4,400,000

Goods available for sale
6,300,000

Ending inventory
1,600,000

Cost of goods sold
4,700,000

Gross profit
2,200,000

Operating expenses
Selling expenses
450,000

Administrative expenses
700,000

1,150,000

Net income
$1,050,000


Additional information:

1. Accounts receivable decreased $360,000 during the year.
2. Prepaid expenses increased $170,000 during the year.
3. Accounts payable to suppliers of merchandise decreased $275,000 during the year.
4. Accrued expenses payable decreased $100,000 during the year.
5. Administrative expenses include depreciation expense of $60,000.

Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2017, for Vince Gill Company, 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 statement of cash flows is presented below:

                                                     Vince Gill Company

                                                 Operating activities section

                                                Statement of cash flows

                                    For the year ended December 31, 2017

Cash flow from operating activities

Net operating income $1,050,000

Adjustment made

Add: Depreciation expenses $60,000

Add: Decrease in account receivable $360,000

Add: Decrease in inventory  $300,000 ($1,600,000 - $1,900,000)

Less: Increase in prepaid expenses -$170,000

Less: Decrease in accrued expenses -$100,000

Less: Decrease in account payable -$275,000

Net cash provided by operating activities $1,225,000