Studdy AI Logo
Math  /  Data & Statistics

QuestionE17-5 (LO 2), Ap The current sections of Sunn Inc.'s balance sheets at December 31, 2021 and 2022, are presented here. Sunn's net income for 2022 was $153,000\$ 153,000. Depreciation expense was $27,000\$ 27,000. \begin{tabular}{|c|c|c|} \hline & 2022 & 2021 \\ \hline \multicolumn{3}{|l|}{Current assets} \\ \hline Cash & \$105,000 & \$99,000 \\ \hline Accounts receivable & 80,000 & 89,000 \\ \hline Inventory & 168,000 & 172,000 \\ \hline Prepaid expenses & 27,000 & 22,000 \\ \hline Total current assets & \$380,000 & \$382,000 \\ \hline \multicolumn{3}{|l|}{Current liabilities} \\ \hline Accrued expenses payable & \$ 15,000 & \$ 5,000 \\ \hline Accounts payable & 85,000 & 92,000 \\ \hline Total current liabilities & \$100,000 & \$97,000 \\ \hline \end{tabular}
Instructions Prepare the operating activities section of the company's statement of cash flows for the year ended December 31, 2022, using the indirect method. Prepare statement of cash flows-indirect method.

Studdy Solution

STEP 1

1. We are using the indirect method to prepare the operating activities section of the statement of cash flows.
2. Net income for 2022 is given as \$153,000.
3. Depreciation expense for 2022 is \$27,000.
4. Changes in current assets and current liabilities affect cash flows from operating activities.

STEP 2

1. Start with net income.
2. Adjust for non-cash expenses.
3. Adjust for changes in current assets.
4. Adjust for changes in current liabilities.

STEP 3

Start with net income for 2022:
Net Income=$153,000 \text{Net Income} = \$153,000

STEP 4

Add back non-cash expenses, such as depreciation:
Depreciation Expense=$27,000 \text{Depreciation Expense} = \$27,000
Adjusted Net Income=$153,000+$27,000=$180,000 \text{Adjusted Net Income} = \$153,000 + \$27,000 = \$180,000

STEP 5

Adjust for changes in current assets: - Accounts receivable decreased by $89,000−$80,000=−$9,000 \$89,000 - \$80,000 = -\$9,000 - Inventory decreased by $172,000−$168,000=−$4,000 \$172,000 - \$168,000 = -\$4,000 - Prepaid expenses increased by $27,000−$22,000=$5,000 \$27,000 - \$22,000 = \$5,000
Change in Accounts Receivable=−$9,000 \text{Change in Accounts Receivable} = -\$9,000 Change in Inventory=−$4,000 \text{Change in Inventory} = -\$4,000 Change in Prepaid Expenses=$5,000 \text{Change in Prepaid Expenses} = \$5,000
Net Change in Current Assets=−$9,000−$4,000+$5,000=−$8,000 \text{Net Change in Current Assets} = -\$9,000 - \$4,000 + \$5,000 = -\$8,000
Adjusted Cash Flow=$180,000−$8,000=$172,000 \text{Adjusted Cash Flow} = \$180,000 - \$8,000 = \$172,000

STEP 6

Adjust for changes in current liabilities: - Accrued expenses payable increased by $15,000−$5,000=$10,000 \$15,000 - \$5,000 = \$10,000 - Accounts payable decreased by $92,000−$85,000=−$7,000 \$92,000 - \$85,000 = -\$7,000
Change in Accrued Expenses Payable=$10,000 \text{Change in Accrued Expenses Payable} = \$10,000 Change in Accounts Payable=−$7,000 \text{Change in Accounts Payable} = -\$7,000
Net Change in Current Liabilities=$10,000−$7,000=$3,000 \text{Net Change in Current Liabilities} = \$10,000 - \$7,000 = \$3,000
Final Cash Flow from Operating Activities=$172,000+$3,000=$175,000 \text{Final Cash Flow from Operating Activities} = \$172,000 + \$3,000 = \$175,000
The cash flow from operating activities for the year ended December 31, 2022, is:
$175,000 \boxed{\$175,000}

Was this helpful?

Studdy solves anything!

banner

Start learning now

Download Studdy AI Tutor now. Learn with ease and get all help you need to be successful at school.

ParentsInfluencer programContactPolicyTerms
TwitterInstagramFacebookTikTokDiscord