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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. 31,2016 Dec. 31,2015 Accounts receivable $18,000 $14,400 Inventory 34,800 29,700 Accounts payable 27.600 20,700 Dividends payable 8,400 10,800 Adjust net income of $160,000 for changes in operating assets and liabilities to arrive at net cash flow from operating activities.
Financial & Managerial Accounting
Solutions
Financial & Managerial 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. 31,2016 | Dec. 31,2015 | |
| Accounts receivable | $18,000 | $14,400 |
| Inventory | 34,800 | 29,700 |
| Accounts payable | 27.600 | 20,700 |
| Dividends payable | 8,400 | 10,800 |
Adjust net income of $160,000 for changes in operating assets and liabilities to arrive at net cash flow from operating activities.
Statement of cash flows: It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.
Indirect method: Under this method, the following amounts are to be adjusted from the Net Income to calculate the net cash provided from operating activities.
Cash flows from operating activities: These are the cash produced by the normal business operations.
The below table shows the way of calculation of cash flows from operating activities:
| Cash flows from operating activities (Indirect method) |
| Add: Decrease in current assets |
| Increase in current liability |
| Depreciation expense and amortization expense |
| Loss on sale of plant assets |
| Deduct: Increase in current assets |
| Decrease in current liabilities |
| Gain on sale of plant assets |
| Net cash provided from or used by operating activities |
Table (1)
To Compute: Net cash flows from operating activities under indirect method.
Explanation of Solution
| H Corporation’s | ||
| Statement of Cash Flows - Indirect Method (Partial) | ||
| Details | Amount ($) | Amount ($) |
| Cash flows from operating activities: | ||
| Net income | 160,000 | |
| Adjustments to reconcile net income to net cash flow from operating activities: | ||
| Changes in current operating assets and liabilities: | ||
| Increase in accounts receivable | (3,600) | |
| Increase in inventory | (5,100) | |
| Increase in accounts payable | 6,900 | (1,800) |
| Net cash provided by operating activities | $158,200 | |
Table (2)
Working note:
Prepare the schedule in the changes of current assets and liabilities...
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