Marion Company reported net income of $170,000 for the current year. Depreciation recorded on buildings and equipment amounted to $50,000 for the year. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:

End of Year Beginning of Year

Cash $20,000 $18,000

Accounts receivable 40,000 32,000

Inventories 50,000 58,000

Accounts payable 11,000 18,000

Salaries payable 10,000 6,000

Required:

Prepare the cash flows from the operating activities section of the statement of cash flows using the indirect method.

Answer and Explanation:

The preparation of the cash flow from the operating activities is presented below:

Marion Company

Cash flow statement

Cash flow from operating activities

Net income $170,000

Adjustment made

Add: Depreciation expenses $50,000

less: Increase in account receivable - $8,000 ($40,000 - $32,000)

Add: Decrease in inventory $8,000 ($50,000 - $58,000)

Less: Decrease in account payable - $7,000 ($11,000 - $18,000)

Add: Increase in salaries payable $4,000 ($10,000 - $6,000)

Net cash provided by operating activities $217,000

The cash inflow represents in a positive sign and the cash outflow represents in a negative sign