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Cash flows from operating activities—indirect method Selected data derived from the income statement and balance sheet of National Beverage Co. for a recent year are as follows: Income statement data (in thousands): Net earnings (loss) $43,993 Losses on inventory write-down and fixed assets 7 Depreciation expense 10,174 Stock-based compensation expense (noncash) 290 Balance sheet data (in thousands): Increase in accounts receivable 5,679 Increase in inventory 7,509 Decrease in prepaid expenses 2,239 Decrease in accounts payable and other current liabilities 1,341 a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method for National Beverage Co. b. Interpret your results in part (a).

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Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285866307

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Section
BuyFindarrow_forward

Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285866307
Chapter 14, Problem 14.16EX
Textbook Problem
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Cash flows from operating activities—indirect method

Selected data derived from the income statement and balance sheet of National Beverage Co. for a recent year are as follows:

Income statement data (in thousands):  
Net earnings (loss) $43,993
Losses on inventory write-down and fixed assets 7
Depreciation expense 10,174
Stock-based compensation expense (noncash) 290
Balance sheet data (in thousands):  
Increase in accounts receivable 5,679
Increase in inventory 7,509
Decrease in prepaid expenses 2,239
Decrease in accounts payable and other current liabilities 1,341

a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method for National Beverage Co.

b. Interpret your results in part (a).

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 Prepare: The cash flows from operating activities sections of the statement of cash flows using indirect method.

Explanation of Solution

N Beverage Company
Statement of Cash Flows - Indirect Method (Partial)
Details Amount ($) Amount ($)
Cash flows from operating activities:    
Net loss   (43,993)
Adjustments to reconcile net income to net cash flow from operating activities:    
Depreciation expense 10,174  
Loss on inventory write-do...

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Chapter 14 Solutions

Financial & Managerial Accounting
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