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Changes in current operating assets and liabilities–indirect method Huluduey Corporation’s comparative balance sheet for current assets and liabilities was as follows: Dec. 31,20Y2 Dec. 31, 20Y1 Accounts receivable $17,500 $12,500 Inventory 51,650 44,200 Accounts payable 8,480 5,100 Dividends payable 9,480 6,100 Adjust net income of $75,800 for changes in operating assets and liabilities to arrive at net cash flow from operating activities.
Corporate Financial Accounting
Solutions
Corporate Financial Accounting
Changes in current operating assets and liabilities–indirect method
Huluduey Corporation’s comparative balance sheet for current assets and liabilities was as follows:
| Dec. 31,20Y2 | Dec. 31, 20Y1 | |
| Accounts receivable | $17,500 | $12,500 |
| Inventory | 51,650 | 44,200 |
| Accounts payable | 8,480 | 5,100 |
| Dividends payable | 9,480 | 6,100 |
Adjust net income of $75,800 for changes in operating assets and liabilities to arrive at net cash flow from operating activities.
Statement of cash flows: It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.
Indirect method: Under this method, the following amounts are to be adjusted from the Net Income to calculate the net cash provided from operating activities.
Cash flows from operating activities: These are the cash produced by the normal business operations.
The below table shows the way of calculation of cash flows from operating activities:
| Cash flows from operating activities (Indirect method) |
| Add: Decrease in current assets |
| Increase in current liability |
| Depreciation expense and amortization expense |
| Loss on sale of plant assets |
| Deduct: Increase in current assets |
| Decrease in current liabilities |
| Gain on sale of plant assets |
| Net cash provided from or used by operating activities |
Table (1)
To Compute: Net cash flows from operating activities under indirect method.
Explanation of Solution
Explanation:
| H Corporation’s | ||
| Statement of Cash Flows - Indirect Method (Partial) | ||
| Details | Amount ($) | Amount ($) |
| Cash flows from operating activities: | ||
| Net income | 75,800 | |
| Adjustments to reconcile net income to net cash flow from operating activities: | ||
| Changes in current operating assets and liabilities: | ||
| Increase in accounts receivable | (5,000) | |
| Increase in inventory | (7,450) | |
| Increase in accounts payable | 3,380 | (9,070) |
| Net cash provided by operating activities | $66,730 | |
Table (2)
Working note:
Prepare the schedule in the changes of current assets and liabilities...
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