Question

Calculating Net Cash Flow from Operating Activities (Indirect Method) Lincoln Company owns no plant assets and reported the following income statement for the current year: Sales $750,000 Cost of Goods Sold $470,000 Wages Expense 110,000 Rent Expense 42,000 Insurance Expense 15,000 637,000 Net Income $113,000 Additional balance sheet information about the company follows: End of Year Beginning of Year Accounts Receivable $54,000 $49,000 Inventory 60,000 66,000 Prepaid Insurance 8,000 7,000 Accounts Payable 22,000 18,000 Wages Payable 9,000 11,000 Use the information to a. Calculate the net cash flow from operating activities under the indirect method. $Answer b. Compute Lincoln Company's operating cash flow to current liabilities (OCFCL) ratio. (Assume current liabilities consist of accounts payable and wages payable.) (Round your answer to two decimal places.) Answer

Answer 1

Answer:

(a) Net Cash flow from operating activities = 115,000

(b) Net Cash flow from operating activities (NCOA) to current liabilities (CL) :

Current liabilities = 22000+9000 = 31000

NCOA to CL = 115,000/31000 = 3.71

Explanation:

Income Statement

                                                                                       $

Sales                                                                        750,000

Cost of Goods sold                                               (470,000)

Gross profit                                                             280,000

Wages expenses                                                   (110,000)

Rent expenses                                                        (42,000)

Insurance expenses                                               (15,000)

Net Income                                                              113,000

Cash flow Statement

Net Income                                                                 113,000

Cash flow from operating activities :  

Increase in Receivables (54,000-49,000)                (5,000)

Decrease in Inventories (66,000-60,000)                6,000

Increase in prepaid Insurance (8000-7000)             (1000)

Increase in Accounts Payable (22000-18000)         4000

Decrease in wages payable (11000-9000)               (2000)

Net increase in cash flow from Operating activities 115,000