Cash Flow from Operations—Comparison of Indirect and Direct Methods
The statement of cash flows for Riker Company (prepared using the indirect method) follows.
Consider the following additional information:
(a) Sales for the year totaled $812,350. Cost of goods sold was $500,000. Operating expenses were $100,000. Interest expense was $23,000. Income tax expense was $40,430.
(b) Of the decrease in accounts payable, 80% is related to inventory purchases; the remaining
20% related to operating expenses.
(c) Depreciation and amortization are period costs; they do not enter into the computation of cost of goods sold.
Riker Company |
||
Cash flows from operating activities: |
||
Net income |
|
$68,850 |
Adjustments: |
|
|
Depreciation expense |
$65,000 |
|
Amortization expense |
10,000 |
|
Loss on sale of machine |
7,400 |
|
Gain on retirement of long term debt |
(2,330) |
|
Increase in accounts receivable |
(8,600) |
|
Decrease in inventory |
12,430 |
|
Decrease in prepaid operating expenses |
1,680 |
|
Decrease in accounts payable |
(2,400) |
|
Increase in interest payable |
500 |
|
Increase in income taxes payable |
2,500 |
86,180 |
Net cash provided by operating activities |
|
$155,030 |
Cash flows from investing activities: |
|
|
Sale of machine |
$12,000 |
|
Purchase of fixed assets |
(78,000) |
|
Net cash used in investing activities |
|
(66,000) |
Cash flows from financing activities: |
|
|
Retirement of long term debt |
($65,000) |
|
Payment of dividends |
(27,000) |
|
Net cash used in financing activities |
|
(92,000) |
Net decrease in cash |
|
($2,970) |
Cash at beginning of year |
|
5,320 |
Cash at end of year |
|
$2,350 |
Instructions: Prepare the Operating Activities section of the statement of cash flows for Riker Company using the direct method.