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12 July, 10:25

Software Distributors reports net income of 555,000. Included in that number is depreciation expense of 510.000 and aloss on the sale of land of $5,000. A comparison of this year's and last year's balance sheets reveals a decrease in accountsreceivable of $25,000. a decrease in inventory of 515.000, and an increase in accounts payable of 545,000. Required.-Prepare the operating activities section of the statement of cash flows using the indirect method. Do you see a pattern inSoftware Distributors' adjustments to net income to arrive at operating cash flows? What might this imply?

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  1. 12 July, 10:52
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    The preparation of the Cash Flows from Operating Activities-Indirect Method is shown below:

    Cash flow from Operating activities - Indirect method

    Net income $555,000

    Adjustment made:

    Add : Depreciation expense $510,000

    Add: Loss on the sale of land $5,000

    Add: Decrease in accounts receivable $25,000

    Add: Decrease in inventory $515,000

    Add: Increase in accounts payable $545,000

    Total of Adjustments $1,600,000

    Net Cash flow from Operating activities $2,155,000

    The operating cash flow is shown below:

    = EBIT + Depreciation - Income tax expense

    where,

    EBIT = Sales - cost of good sold - depreciation expense

    These things are considered for computing the operating cash flows
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