Statement of
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)
Cash flows from investing activities: Cash provided by or used in investing activities is a section of statement of cash flows. It includes the purchase or sale of equipment or land, or marketable securities, which is used for business operations.
The below table shows the way of calculation of cash flows from investing activities:
Cash flows from investing activities |
Add: Proceeds from sale of fixed assets |
Sale of marketable securities / investments |
Interest received |
Dividend received |
Deduct: Purchase of fixed assets/long-lived assets |
Purchase of marketable securities |
Net cash provided from or used by investing activities |
Table (2)
Cash flows from financing activities: Cash provided by or used in financing activities is a section of statement of cash flows. It includes raising cash from long-term debt or payment of long-term debt, which is used for business operations.
The below table shows the way of calculation of cash flows from financing activities:
Cash flows from financing activities |
Add: Issuance of common stock |
Proceeds from borrowings |
Proceeds from issuance of debt |
Issuance of bonds payable |
Deduct: Payment of dividend |
Repayment of debt |
Interest paid |
Redemption of debt |
Repurchase of stock |
Net cash provided from or used by financing activities |
Table (3)
To Prepare: A statement of cash flows using the indirect method for presenting cash flows from operating activities.
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Chapter 16 Solutions
Bundle: Accounting, 27th + Working Papers, Chapters 1-17
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- Statement of cash flowsdirect method applied to PR 13-1A The comparative balance sheet of Livers Inc. for December 31, 20Y3 and 20Y2, is as follows: Additional data obtained from an examination of the accounts in the ledger for 20Y3 are as follows: A. The investments were sold for 175,000 cash. B. Equipment and land were acquired for cash. C. There were no disposals of equipment during the year. D. The common stock was issued for cash. E. There was a 90,000 debit to Retained Earnings for cash dividends declared. Instructions Prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities.arrow_forwardStatement of Cash Flows The following are Mueller Companys cash flow activities: a. Net income, 68,000 b. Increase in accounts receivable, 4,400 c. Receipt from sale of common stock, 12,300 d. Depreciation expense, 11,300 e. Dividends paid, 24,500 f. Payment for purchase of building, 65,000 g. Bond discount amortization, 2,700 h. Receipt from sale of long-term investments at cost, 10,600 i. Payment for purchase of equipment, 8,000 j. Receipt from sale of preferred stock, 20,000 k. Increase in income taxes payable, 3,500 l. Payment for purchase of land, 9,700 m. Decrease in accounts payable, 2,900 n. Increase in inventories, 10,300 o. Beginning cash balance, 18,000 Required: Prepare Mueller Company's statement of cash flows.arrow_forwardSmoltz Company reported the following information for the current year: cost of goods sold, $252,500; increase in inventory, $21,700; and increase in accounts payable, $12,200. What is the amount of cash paid to suppliers that Smoltz would report on its statement of cash flows under the direct method? a. $218,600 c. $262,000 b. $243,000 d. $286,400arrow_forward
- Financial data for Otto Company follow: a. Compute the ratio of cash to monthly cash expenses. b. Interpret the results computed in (a).arrow_forwardStatement of cash flowsindirect method The comparative balance sheet of Yellow Dog Enterprises Inc. at December 31, 20Y8 and 20Y7, is as follows: Additional data obtained from the income statement and from an examination of the accounts in the ledger for 20Y8 are as follows: a. Net income, 250,000. b. Depreciation reported on the income statement, 135,000. c. Equipment was purchased at a cost of 420,000 and fully depreciated equipment costing 90,000 was discarded, with no salvage realized. d. The mortgage note payable was not due for six years, but the terms permitted earlier payment without penalty. e. 30,000 shares of common stock were issued at 20 for cash. f. Cash dividends declared and paid, 45,000. Instructions Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.arrow_forward
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