Question

Partial balance sheets and additional iformation are listed below for Sowell Company.
SOWELL COMPANY
Partial Balance Sheets
as of December 31
Assets 2011 2010
Cash $40,000 $20,000
Accounts Receivable 70,000 85,000
Inventory 40,000 35,000
Liabilities
Accounts Payable $54,000 $62,000
Additional Information:
Net income was $88,000.
Depreciation expense was $19,000.
REQUIRED: Prepare the operating activities section of the statement of cash flows for 2011 using the indirect method.

Answer 1

Answer and Explanation:

The preparation of the operating activities section is presented below

Cash Flows from operating activities

Net Income $88,000

Adjustment made for non cash items:                  

Depreciation Expense $19,000

Add: Decrease in Account Receivable $15000 ($70,000 - $85,000)

Less: Increase in Inventory   $(5000) ($40,000 - $35,000)

Less: Decrease in accounts payable   $(8000) ($54,000 - $62,000)

Net cash flows from operating activities        $109,000