PROBLEM 13.4A
Reporting Operating
Cash Flows by the
Direct MethodPLO3
C
DR
LO8
TREECE, INC.
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2011
Revenue:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,850,000
Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,000
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000
Gain on sales of marketable securities . . . . . . . . . . . . . . . . . . . 4,000
Total revenue and gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,028,000
Costs and expenses:
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,550,000
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 980,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185,000
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000
Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,805,000
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 223,000
End of Beginning
Year of Year
Selected account balances:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 650,000 $ 720,000
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 6,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000 765,000
Short term prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 15,000
Accounts payable (merchandise suppliers) . . . . . . . . . . . . . . . . 570,000 562,000
Accrued operating expenses payable . . . . . . . . . . . . . . . . . . . . 65,000 94,000
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,000 12,000
Accrued income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . 22,000 35,000
Problem 13.5A
Using the information presented in Problem 13.4A, prepare a partial statement of cash flows for
the current year, showing the computation of net cash flows from operating activities by the indi
rect method. Explain why the decline in accounts receivable over the year was added to net income
in computing the cash flows from operating activities.