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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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The income statement for Piura Merchandising Corporation is as follows:

Chapter 14, Problem 42E, The income statement for Piura Merchandising Corporation is as follows: Other information is as

Other information is as follows:

  1. a. Accounts payable decreased by $20,000 during the year.
  2. b. Accounts receivable increased by $20,000.
  3. c. All wages were paid at the beginning of the year; at the end of the year, wages payable had a balance of $12,000.
  4. d. Prepaid insurance increased by $24,000 during the year.

Required:

Prepare a schedule that provides the operating cash flows for the year using the indirect method.

To determine

Construct a schedule showing the operating cash flows with the use of indirect method.

Explanation

Cash Flows from Operating Activities:

This category of a cash flow statement shows the operational and profit generating activities in a firm. The operating cash flows increase or decrease the current assets and current liabilities of a firm.

The schedule showing operating cash flows using indirect method is in the table below:

PM Company
Schedule of Cash Flow from Operating Activities
For the year ended December 31, 20X1
ParticularsAmount ($)
Cash flows from operating activities: 
Net income156,000
Add/ Less: 
    Decrease in accounts payable(20,000)
    Increase in accounts receivable(20,000)
    Increase in wages payable12,000
    Increase in prepaid insurance(24,000)
    Decrease in inventory1200,000
    Depreciation expense100,000
    Amortization of patent20,000
        Net cash from operating activities424,000

Table (1)

Therefore, net cash flow from operating activities is $424,000...

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