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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.

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Corporate Financial Accounting

15th Edition
Carl Warren + 1 other
Publisher: Cengage Learning
ISBN: 9781337398169

Solutions

BuyFindarrow_forward

Corporate Financial Accounting

15th Edition
Carl Warren + 1 other
Publisher: Cengage Learning
ISBN: 9781337398169
Chapter 13, Problem 13.3BE
Textbook Problem
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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.

To determine

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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Chapter 13 Solutions

Corporate Financial Accounting
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