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.
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Riker Company |
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Cash flows from operating activities: |
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Net income |
|
$68,850 |
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Adjustments: |
|
|
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Depreciation expense |
$65,000 |
|
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Amortization expense |
10,000 |
|
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Loss on sale of machine |
7,400 |
|
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Gain on retirement of long term debt |
(2,330) |
|
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Increase in accounts receivable |
(8,600) |
|
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Decrease in inventory |
12,430 |
|
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Decrease in prepaid operating expenses |
1,680 |
|
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Decrease in accounts payable |
(2,400) |
|
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Increase in interest payable |
500 |
|
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Increase in income taxes payable |
2,500 |
86,180 |
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Net cash provided by operating activities |
|
$155,030 |
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Cash flows from investing activities: |
|
|
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Sale of machine |
$12,000 |
|
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Purchase of fixed assets |
(78,000) |
|
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Net cash used in investing activities |
|
(66,000) |
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Cash flows from financing activities: |
|
|
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Retirement of long term debt |
($65,000) |
|
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Payment of dividends |
(27,000) |
|
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Net cash used in financing activities |
|
(92,000) |
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Net decrease in cash |
|
($2,970) |
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Cash at beginning of year |
|
5,320 |
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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.