Question
Alabama Auto Parts Company uses the indirect method to prepare the statement of cash flows. Refer to the following income statement:
Alabama Auto Parts Company
Income Statement
Year Ended December 31, 2024
Sales Revenue $395,000
Interest Revenue 950
Gain on Sale of Plan Assets 6,800
Total Revenue and Gains $402,750
Cost of Goods Sold 160,300
Salary Expense 69,700
Depreciation Expense 18,600
Other Operating Expenses 35,500
Interest Expense 600
Income Tax Expense 8,500
Total Expenses 293,200
Net Income (Loss) $109,550
Additional information provided by the company includes the following:
Current assets other than cash increase by $ 30000.
Current liabilities decrease by $ 3500.
Prepare the operating activities section of the statement of cash flows. (Use a minus sign or parentheses for amounts that result in a decrease in cash. If a field is not used in the statement, leave the field empty; do not select a label or enter a zero.)
Alabama Auto Parts Company
Income Statement
Year Ended December 31, 2024
Sales Revenue $395,000
Interest Revenue 950
Gain on Sale of Plan Assets 6,800
Total Revenue and Gains $402,750
Cost of Goods Sold 160,300
Salary Expense 69,700
Depreciation Expense 18,600
Other Operating Expenses 35,500
Interest Expense 600
Income Tax Expense 8,500
Total Expenses 293,200
Net Income (Loss) $109,550
Additional information provided by the company includes the following:
Current assets other than cash increase by $ 30000.
Current liabilities decrease by $ 3500.
Prepare the operating activities section of the statement of cash flows. (Use a minus sign or parentheses for amounts that result in a decrease in cash. If a field is not used in the statement, leave the field empty; do not select a label or enter a zero.)
Answers
GPT-4o mini
To prepare the operating activities section of the statement of cash flows using the indirect method, we start with the net income and then adjust for non-cash items and changes in working capital.
Here’s how to prepare the operating activities section:
1. **Start with Net Income**:
\[
Net Income: \quad 109,550
\]
2. **Add back non-cash expenses**:
- Depreciation Expense: \($18,600\)
3. **Adjust for gains/losses that are included in net income but do not involve cash**:
- Subtract Gain on Sale of Plant Assets: \(-6,800\)
4. **Adjust for changes in working capital accounts**:
- **Current Assets (Other than Cash)**: Increase of $30,000 (which means cash outflow): \(-30,000\)
- **Current Liabilities**: Decrease of $3,500 (which means cash outflow): \(-3,500\)
Now we can compile these into the operating activities section:
### Alabama Auto Parts Company
### Statement of Cash Flows (Operating Activities)
For the Year Ended December 31, 2024
| Cash Flows from Operating Activities |
|------------------------------------------------------|
| Net Income | $109,550 |
| Adjustments to Reconcile Net Income to Net Cash | |
| Provided by Operating Activities | |
| Depreciation Expense | $18,600 |
| Gain on Sale of Plant Assets | \(-6,800\) |
| Changes in Working Capital: | |
| Increase in Current Assets (other than cash) | \(-30,000\) |
| Decrease in Current Liabilities | \(-3,500\) |
| **Net Cash Provided by Operating Activities** | |
### Calculation of Net Cash Provided by Operating Activities
Now let's calculate it:
\[
Net Cash Provided by Operating Activities = Net Income + Depreciation Expense - Gain on Sale of Plant Assets - Increase in Current Assets - Decrease in Current Liabilities
\]
\[
= 109,550 + 18,600 - 6,800 - 30,000 - 3,500
\]
\[
= 109,550 + 18,600 - 6,800 - 30,000 - 3,500 = 87,850
\]
### Final Operating Activities Section
Now, here’s the completed table:
### Alabama Auto Parts Company
### Statement of Cash Flows (Operating Activities)
For the Year Ended December 31, 2024
| Cash Flows from Operating Activities |
|------------------------------------------------------|
| Net Income | $109,550 |
| Adjustments to Reconcile Net Income to Net Cash | |
| Provided by Operating Activities | |
| Depreciation Expense | $18,600 |
| Gain on Sale of Plant Assets | \(-6,800\) |
| Changes in Working Capital: | |
| Increase in Current Assets (other than cash) | \(-30,000\) |
| Decrease in Current Liabilities | \(-3,500\) |
| **Net Cash Provided by Operating Activities** | **$87,850** |
This operating activities section summarizes the cash flows from operating activities utilizing the adjustments needed for the indirect method.
Here’s how to prepare the operating activities section:
1. **Start with Net Income**:
\[
Net Income: \quad 109,550
\]
2. **Add back non-cash expenses**:
- Depreciation Expense: \($18,600\)
3. **Adjust for gains/losses that are included in net income but do not involve cash**:
- Subtract Gain on Sale of Plant Assets: \(-6,800\)
4. **Adjust for changes in working capital accounts**:
- **Current Assets (Other than Cash)**: Increase of $30,000 (which means cash outflow): \(-30,000\)
- **Current Liabilities**: Decrease of $3,500 (which means cash outflow): \(-3,500\)
Now we can compile these into the operating activities section:
### Alabama Auto Parts Company
### Statement of Cash Flows (Operating Activities)
For the Year Ended December 31, 2024
| Cash Flows from Operating Activities |
|------------------------------------------------------|
| Net Income | $109,550 |
| Adjustments to Reconcile Net Income to Net Cash | |
| Provided by Operating Activities | |
| Depreciation Expense | $18,600 |
| Gain on Sale of Plant Assets | \(-6,800\) |
| Changes in Working Capital: | |
| Increase in Current Assets (other than cash) | \(-30,000\) |
| Decrease in Current Liabilities | \(-3,500\) |
| **Net Cash Provided by Operating Activities** | |
### Calculation of Net Cash Provided by Operating Activities
Now let's calculate it:
\[
Net Cash Provided by Operating Activities = Net Income + Depreciation Expense - Gain on Sale of Plant Assets - Increase in Current Assets - Decrease in Current Liabilities
\]
\[
= 109,550 + 18,600 - 6,800 - 30,000 - 3,500
\]
\[
= 109,550 + 18,600 - 6,800 - 30,000 - 3,500 = 87,850
\]
### Final Operating Activities Section
Now, here’s the completed table:
### Alabama Auto Parts Company
### Statement of Cash Flows (Operating Activities)
For the Year Ended December 31, 2024
| Cash Flows from Operating Activities |
|------------------------------------------------------|
| Net Income | $109,550 |
| Adjustments to Reconcile Net Income to Net Cash | |
| Provided by Operating Activities | |
| Depreciation Expense | $18,600 |
| Gain on Sale of Plant Assets | \(-6,800\) |
| Changes in Working Capital: | |
| Increase in Current Assets (other than cash) | \(-30,000\) |
| Decrease in Current Liabilities | \(-3,500\) |
| **Net Cash Provided by Operating Activities** | **$87,850** |
This operating activities section summarizes the cash flows from operating activities utilizing the adjustments needed for the indirect method.