Question

S Company reported net income for 2016 in the amount of $440,000. The company's financial statements also included the following: Increase in accounts receivable $ 83,000Decrease in inventory 63,000Increase in accounts payable 240,000Depreciation expense 107,000Gain on sale of land 148,000 a. What is net cash provided by operating activities under the indirect method? Hogan Company had the following account balances for 2016:Dec. 31 Jan. 1Accounts receivable $40,000 $33,000 Accounts payable 64,500 54,000 Prepaid insurance 17,500 9,500 b. Hogan reported net income of $390,000 for 2016. Assuming no other changes in current account balances, what is the amount of net cash provided by operating activities for 2016 reported in the statement of cash flows?

Answer 1

Answer:

$619,000 and $385,500

Explanation:

In case of S company

Cash flow from Operating activities - Indirect method

Net income $440,000

Adjustment made:

Add : Depreciation expense $107,000

Less: Gain on sale of land - $148,000

Less: Increase in accounts receivable -$83,000

Add: Decrease in inventory $63,000

Add: Increase in accounts payable $240,000

Total of Adjustments $179,000

Net Cash flow from Operating activities                   $619,000

In case of Hogan company

Cash flow from Operating activities - Indirect method

Net income $390,000

Adjustment made:

Less: Increase in accounts receivable - $7,000 ($40,000 - $33,000)

Add: Increase in accounts payable $10,500 ($64,500 - $54,000)

Less: Increase in prepaid insurance -$8,000 ($17,500 - $9,500)

Total of Adjustments -$4500

Net Cash flow from Operating activities                $385,500