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    Direct and Indirect Cash Flow Statements

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    A) Prepare a statement of cash flow using the indirect method, including all required disclosures.
    b) Prepare a "cash provided by (or used in) operating activities" section under the direct method.
    c) Comment on the company's cash flow activities during the year.

    See the attached EXCEL file for all of the figures and appropriate information.

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    Solution Preview

    Direct Method - Statement of Cash Flows

    Cash flow from Operating activities
    Income before taxes $112,000
    Bad debt expense $2,000
    Loss on sale of equipment $3,000
    Gain on sale of investments (AFS) $(15,000)
    Deprecaition and amortization $20,000 $10,000
    Cash flow before working capital changes $122,000
    Working capital changes:
    Increase in accounts receivable $(17,500)
    Increase in merchandise inventory $(14,000)
    Reduction in accrued pension liability $(2,500)
    Increase in accounts payable $12,500 $(21,500)
    Income taxes paid $(38,500)
    Cash flow from Operating activities $62,000

    Cash flow from Investing activities
    Sale of investments $52,000
    Proceeds from sale of equipment $3,000
    Purchase of equipment $(32,000)
    Cash flow from Investing activities $23,000

    Cash flow from Financing activities
    Issue of shares $35,000
    Repayment of long term notes $(8,000)
    Dividends paid $(74,000)
    Change in other comprehensive income $(9,000)
    Cash flow from ...

    Solution Summary

    The direct and indirect cash flow statements are examined.