Question

The following is the operating section of the statement of cash flows (direct method) of Battery Builders, Inc.: Collections from customers $ 28,000 Payments to suppliers for inventory purchases (13,000 ) Payments for operating expenses (9,000 ) Payments for income taxes (2,260 ) Cash provided by operating activities 3,740 The following information is obtained from the income statement of Battery Builders: Net income $ 6,740 Depreciation expense 4,000 In addition, the following information is obtained from the comparative balance sheets of Battery Builders (decreases in parentheses): Change in accounts receivable $ 3,000 Change in inventory 3,000 Change in accounts payable 2,000 Change in accrued payables (related to operating expense) (2,000 ) Change in income taxes payable (1,000 ) Required: Prepare a complete accrual-basis income statement for the current year. Compute the cash flows from operations using the indirect approach (that is, start with accrual-basis net income and adjust for various items to obtain cash flows from operations).

Answer 1

Answer and Explanation:

The computation is shown below:

Sales ($28,000 + $3,000)  $31,000

Less: Cost of goods sold  ($13,000 + $2,000 - $3,000)  -$12,000

Operating expenses($9,000 - $2,000)  -$7,000

Depreciation expense -$4,000

Income tax expense  ($4,000 + $1,000)  -$5,000

Amortization expense -$1,000

Gain on sale of equipment $2,000

Net income $4,000

2.  

Net income $4,000

Add:  

Depreciation $4,000

Write-off of intangibles $1,000

Less:  

Gain on sale of equipment -$2,000

Cash flow before working capital changes  $7,000

Increase in accounts receivable -$3,000

Increase in inventory -$3000

Increase in accounts payable $2000

Decrease in accrued payable -$2000

Increase in deferred income taxes payable $1,000

Net Cash from Operations $2,000