Deck 15: Statement of Cash Flows

Question 1

Cash inflows from operating activities come from

A) payment for raw materials.
B) gains on the sale of operating equipment.
C) collection of sales revenues.
D) issuing capital stock.
E) issuing bonds.

Answer 1

The correct answer is (c) collection of sales revenue.
Because, sales revenue is an operating activity and it is also an inflow.
The other choices are not correct and are not relevant because,
(a) Payment for raw materials is although an operating activity but it involves cash out flow but not inflow.
(b) Gain on sale of operating equipment is not an operating activity but it is an investing activity.
(d) Issuing capital stock is a financing activity though it involves a cash inflow.
(e) Issuing bonds is a financing activity though it involves a cash inflow.
Thus the correct option is (c)

Question 2

A decrease in accounts receivable is added to net income to obtain operating cash flows because

A) cash collections increased due to increasing sales.
B) cash collections from customers were less than the revenues reported.
C) cash collections decreased due to declining sales.
D) cash collections from customers were greater than the revenues reported.
E) none of the above.

Answer 2

The correct answer is (d) cash collections from customers were greater than the revenues reported.
Because, Cash collections from customers increases the cash inflows from the operating activities.
The other choices are not correct and are not relevant because,
(a) Cash collections increased due to increasing sales, is directly involved in net income.
(b) It is not due to cash collections form customers were less than the revenues reported.
(c) It is not because of cash collections decreased due to declining sales.
(e) None of the above is irrelevant.
Thus the correct option is (d)

Question 3

Cash Flows from Investing Activities
During the year, Blaylock Company sold equipment with a book value of $140,000 for $190,000 (original purchase cost of $240,000). New equipment was purchased.
Blaylock Company provided the following comparative balance sheets:
Required:
Calculate the investing cash flows for the current year.

Answer 3

Working note-1: Calculation of purchase of new equipment and gain on sale of old equipment: Working note-2: Calculation of purchase land: Calculation of Investing Cash Flows of Blaylock Company for the year 2012: Therefore net cash flow from investing activities is $243,750.

Question 4

Lunarica Corporation has the following comparative financial statements:
Dividends of $5,700 were paid. No equipment was purchased or retired during the current year.
Statement of Cash Flows, Indirect Method
Refer to the information for Lunarica Corporation above.
Required:
Prepare a statement of cash flows using the indirect method.

Question 5

The activity format calls for three categories on the statement of cash flows. Define each category.

Question 6

In computing the period's net operating cash flows, why are decreases in liabilities and increases in current assets deducted from net income

Question 7

Cash Flows from Financing Activities
Blaylock Company earned net income of $450,000 in 2012. Blaylock provided the following information:
Required:
Compute the financing cash flows for the current year.

Question 8

Lunarica Corporation has the following comparative financial statements:
Dividends of $5,700 were paid. No equipment was purchased or retired during the current year.
Statement of Cash Flows, Direct Method
Refer to the information for Lunarica Corporation above.
Required:
Calculate operating cash flows using the direct method.

Question 9

Cash outflows from operating activities come from

A) collection of sales revenues.
B) payment for operating costs.
C) acquisition of operating equipment.
D) retirement of bonds.
E) none of these.

Question 10

An increase in inventories is deducted from net income to arrive at operating cash flow because

A) cash payments to customers were larger than the purchases made during the period.
B) purchases are larger than the cost of goods sold by the amount that inventories increased.
C) cash payments to customers were less than the purchases made during the period.
D) purchases are less than the cost of goods sold by the amount that inventories increased.
E) All of the above.

Question 11

Statement of Cash Flows
Refer to the information provided in Cornerstone Exercises 15-19, 15-20, and 15-21.
Required:
1. Prepare a statement of cash flows for Blaylock Company for 2012.
2. What is the relationship between the statement of cash flows and the change in cash calculated in Cornerstone Exercise 15-18

Question 12

The following financial statements were provided by Roberts Company:
At the end of 2012, Roberts purchased some additional equipment for $20,000.
Statement of Cash Flows, Indirect Method
Refer to the information for Roberts Company above.
Required:
Prepare a statement of cash flows using the indirect method.

Question 13

Of the three categories on the statement of cash flows, which do you think provides the most useful information Explain.

Question 14

In computing the period's net operating cash flows, why are noncash expenses added back to net income

Question 15

Operating Cash Flows: Direct Method
Roberts Company has provided the following partial comparative balance sheets and the income statement for 2012.
Required:
Compute operating cash flows using the direct method.

Question 16

The following financial statements were provided by Roberts Company:
At the end of 2012, Roberts purchased some additional equipment for $20,000.
Statement of Cash Flows, Direct Method
Refer to the information for Roberts Company above.
Required:
Prepare a statement of cash flows using the direct method.

Question 17

Raising cash by issuing capital stock is an example of

A) a financing activity.
B) an investing activity.
C) an operating activity.
D) a noncash transaction.
E) none of these.

Question 18

The gain on sale of equipment is deducted from net income to arrive at operating cash flows because

A) the sale of long-term assets is an operating activity.
B) the gain reveals the total cash received.
C) all of the cash received from the sale is reported in the operating section.
D) All of the above.
E) None of the above.

Question 19

Worksheet Approach
During 2012, Young Company had the following transactions:
a. Cash dividends of $10,000 were paid.
b. Equipment was sold for $4,800. It had an original cost of $18,000 and a book value of $9,000. The loss is included in operating expenses.
c. Land with a fair market value of $25,000 was acquired by issuing common stock with a par value of $6,000.
d. One thousand shares of preferred stock (no par) were sold for $7 per share.
Young Company provided the following income statement (for 2012) and comparative balance sheets:
Required:
Prepare a worksheet for Young Company

Question 20

Booth Manufacturing has provided the following financial statements.
Other information includes: (a) Equipment with a book value of $125,000 was sold for $175,000 (original cost was $225,000); and (b) Dividends of $225,000 were declared and paid.
Statement of Cash Flows, Indirect Method
Refer to the information for Booth Manufacturing above.
Required:
1. Calculate the cash flows from operations using the indirect method.
2. Prepare a statement of cash flows.
3. Conceptual Connection: Search the Internet to find a statement of cash flows. Which method was used-the indirect method or the direct method How does the net income reported compare with the operating cash flows To the change in cash flows

Question 21

Explain the all-financial-resources approach to reporting financing and investing activities.

Question 22

Explain the reasoning for including the payment of dividends in the financing section of the statement of cash flows.

Question 23

Activity Classification
Stillwater Designs is a private company and outsources production of its Kicker speaker lines. Suppose that Stillwater Designs provided you the following transactions.
a. Sold a warehouse for $750,000.
b. Reported a profit of $100,000.
c. Retired long-term bonds.
d. Paid cash dividends of $350,000.
e. Obtained a mortgage for a new building from a local bank.
f. Purchased a new robotic system.
g. Issued a long-term note payable.
h. Purchased a 40% interest in a company.
i. Reported a loss for the year.
j. Negotiated a long-term loan.
Required:
Classify each of these transactions as an operating activity, an investing activity, or a financing activity. Also, indicate whether the activity is a source of cash or a use of cash.

Question 24

Booth Manufacturing has provided the following financial statements.
Other information includes: (a) Equipment with a book value of $125,000 was sold for $175,000 (original cost was $225,000); and (b) Dividends of $225,000 were declared and paid.
Statement of Cash Flows: Direct Method
Refer to the information for Booth Manufacturing above.
Required:
Calculate operating cash flows using the direct method.

Question 25

Sources of cash include

A) profitable operations.
B) the issuance of long-term debt.
C) the sale of long-term assets.
D) the issuance of capital stock.
E) all of these.

Question 26

Which of the following is an investing activity

A) Issuance of a mortgage
B) Increase in accounts receivable
C) Purchase of land
D) Increase in inventories
E) All of these.

Question 27

Adjustments to Net Income
Consider the following independent events:
a. Loss on sale of an asset
b. Decrease in accounts receivable
c. Increase in prepaid insurance
d. Depreciation expense
e. Decrease in accounts payable
f. Uncollectible accounts expense
g. Increase in wages payable
h. Decrease in inventory
i. Amortization of an intangible asset
Required:
Indicate whether each event will be added to or deducted from net income in order to compute cash flow from operations.

Question 28

The following balance sheets and income statement were taken from the records of Rosie-Lee Company:
Direct and Indirect Methods
Refer to the information for Rosie-Lee Company above. Additional transactions were as follows:
a. Sold equipment costing $21,600 with accumulated depreciation of $16,200 for $3,600.
b. Issued bonds for $90,000 on December 31.
c. Paid cash dividends of $36,000.
d. Retired mortgage of $108,000 on December 31.
Required:
1. Prepare a schedule of operating cash flows using (a) the indirect method and (b) the direct method.
2. Prepare a statement of cash flows using the indirect method.

Question 29

Why is it better to report the noncash investing and financing activities in a supplemental schedule rather than to include these activities on the body of the statement of cash flows

Question 30

What are the advantages in using worksheets when preparing a statement of cash flows

Question 31

Adjustment for Prepaid Rent
Charles Company showed $63,000 in prepaid rent on December 31, 2011. On December 31, 2012, the balance in the prepaid rent account was $75,600. Rent expense for 2012 was $157,500.
Required:
1. What amount of cash was paid for rent in 2012
2. Conceptual Connection: What adjustment in prepaid expenses is needed if the indirect method is used to prepare Charles' statement of cash flows

Question 32

Statement of Cash Flows: Indirect Method
Balance sheets for Brierwold Corporation follow:
Additional transactions were as follows:
a. Purchased equipment costing $50,000.
b. Sold equipment costing $60,000 with a book value of $25,000 for $40,000.
c. Retired preferred stock at a cost of $110,000 (the premium is debited to retained earnings).
d. Issued 10,000 shares of common stock (par value, $4) for $10 per share.
e. Reported a loss of $15,000 for the year.
f. Purchased land for $50,000. Additional transactions were as follows:
a. Purchased equipment costing $50,000.
b. Sold equipment costing $60,000 with a book value of $25,000 for $40,000.
c. Retired preferred stock at a cost of $110,000 (the premium is debited to retained earnings).
d. Issued 10,000 shares of common stock (par value, $4) for $10 per share.
e. Reported a loss of $15,000 for the year.
f. Purchased land for $50,000.
Refer to the information for Brierwold Corporation on the previous page.
Required:
Prepare a statement of cash flows using the indirect method.

Question 33

Uses of cash include

A) cash dividends.
B) the sale of old equipment.
C) the purchase of long-term assets.
D) only a and b.
E) only a and c.

Question 34

Which of the following is a financing activity

A) Increase in inventories
B) Purchase of land
C) Increase in accounts receivable
D) Issuance of a mortgage
E) All of these.

Question 35

Operating Cash Flows
During the year, Makenzie Company earned a net income of $41,150. Beginning and ending balances for the year for selected accounts are as follows:
There were no financing or investing activities for the year. The above balances reflect all of the adjustments needed to adjust net income to operating cash flows.
Required:
1. Prepare a schedule of operating cash flows using the indirect method.
2. Suppose that all the data in used Requirement 1 except that the ending accounts payable and cash balances are not known. Assume also that you know that the operating cash flow for the year was $13,650. What is the ending balance of accounts payable
3. Conceptual Connection: Makenzie Company has an opportunity to buy some equipment that will significantly increase productivity. The equipment costs $25,000. Assuming exactly the same data used for Requirement 1, can Makenzie buy the equipment using this year's operating cash flows If not, what would you suggest be done

Question 36

Statement of Cash Flows, Worksheet
Balance sheets for Brierwold Corporation follow:
Additional transactions were as follows:
a. Purchased equipment costing $50,000.
b. Sold equipment costing $60,000 with a book value of $25,000 for $40,000.
c. Retired preferred stock at a cost of $110,000 (the premium is debited to retained earnings).
d. Issued 10,000 shares of common stock (par value, $4) for $10 per share.
e. Reported a loss of $15,000 for the year.
f. Purchased land for $50,000. Additional transactions were as follows:
a. Purchased equipment costing $50,000.
b. Sold equipment costing $60,000 with a book value of $25,000 for $40,000.
c. Retired preferred stock at a cost of $110,000 (the premium is debited to retained earnings).
d. Issued 10,000 shares of common stock (par value, $4) for $10 per share.
e. Reported a loss of $15,000 for the year.
f. Purchased land for $50,000.
Refer to the information for Brierwold Corporation on the previous page.
Required:
Prepare a statement of cash flows using the worksheet approach. Use the indirect method to prepare the statement.

Question 37

What are the five steps for preparing the statement of cash flows What is the purpose of each step

Question 38

Explain how the statement of cash flows can be prepared using the worksheet approach.

Question 39

Cash Flow from Investing Activities
During 2011, Baker Company had the following transactions:
a. Purchased $100,000 of 10-year bonds issued by Makenzie, Inc.
b. Acquired land valued at $35,000 in exchange for machinery.
c. Sold equipment with original cost of $270,000 for $165,000; accumulated depreciation taken on the equipment to the point of sale was $90,000.
d. Purchased new machinery for $120,000.
e. Purchased common stock in Lemmons Company for $55,000.
Required:
1. Prepare the net cash from investing activities section of the statement of cash flows.
2. Conceptual Connection: Usually, the net cash from investing activities is negative. How can Baker cover this negative cash flow What other information would you like to have to make this decision

Question 40

Schedule of Operating Cash Flows: Indirect Method
The income statement for the Mendelin Corporation is as follows:
Additional information is as follows:
a. Interest expense includes $1,800 of discount amortization.
b. The prepaid insurance expense account decreased by $2,000 during the year.
c. Wages payable decreased by $3,000 during the year.
d. Accounts payable increased by $7,500 (this account is for purchase of merchandise only).
e. Accounts receivable increased by $10,000 (net of allowance for doubtful accounts).
f. Inventory decreased by $16,000.
Required:
Prepare a schedule of operating cash flows using the indirect method.

Question 41

The difference between the beginning and ending cash balances shown on the balance sheet

A) is added to net income to obtain total cash inflows.
B) serves as a control figure for the statement of cash flows.
C) is deducted from net income to obtain net cash inflows.
D) is the source of all investing and financing activities.
E) is both c and d.

Question 42

Which method calculates operating cash flows by adjusting the income statement on a line-by-line basis

A) Direct method
B) Indirect method
C) Working paper approach
D) Income method
E) None of these.

Question 43

Cash Flow from Financing Activities
Tidwell Company experienced the following during 2011:
a. Sold preferred stock for $480,000.
b. Declared dividends of $150,000 payable on March 1, 2012.
c. Borrowed $575,000 from bank on a two-year note.
d. Purchased $80,000 of its own common stock to hold as treasury stock.
e. Repaid five-year bonds issued in 2006 for $400,000 due in December.
Required:
Prepare the net cash from financing activities section of the statement of cash flows.

Question 44

Statement of Cash Flows, Indirect Method
The following balance sheets are taken from the records of Golding Company (numbers are expressed in thousands):
Additional information is as follows: (a) Equipment costing $10,000,000 was purchased at year-end. No equipment was sold; and (b) Net income for the year was $25,000,000; $10,000,000 in dividends were paid.
Required:
1. Prepare a statement of cash flows using the indirect method.
2. Conceptual Connection: Assess Golding's ability to use cash to acquire Lemmons Company. Consider the information in Exhibit 15-2 (p. 635) and Cornerstone 15-6 (p. 639) as part of your analysis.

Question 45

Explain how a company can report a positive net income and yet still have a negative net operating cash flow.

Question 46

A worksheet approach to preparing the statement of cash flows

A) is a useful aid.
B) uses a spreadsheet format.
C) offers an efficient and logical way of organizing the data.
D) allows an easy extraction of the needed data.
E) All of these.

Question 47

Oliver Company provided the following information for the years 2011 and 2012:
Operating Cash Flows
Refer to the information for Oliver Company above.
Required:
1. Calculate the change in cash flows that serves as the control figure for the statement of cash flows.
2. Prepare a schedule that provides operating cash flows for the year 2012 using the indirect method.
3. Assume that you have all the information provided for Requirement 1 except that you only know the beginning balance of accounts receivable for 2012. Given this information and assuming that the operating cash flows for 2012 are $41,000, calculate the ending balance for accounts receivable.

Question 48

The following balance sheets were taken from the records of Blalock Company:
Additional transactions were as follows:
a. Sold equipment costing $12,000 with accumulated depreciation of $9,000 for $2,000.
b. Retired bonds at a price of $60,000 on December 31.
c. Earned net income for the year of $68,000; paid cash dividends of $20,000.
Statement of Cash Flows
Refer to the information for Blalock Company on the previous page.
Required:
Prepare a statement of cash flows using the indirect method.

Question 49

Which of the following adjustments helps to convert accrual income to operating cash flows

A) Deduct from net income all noncash expenses.
B) Add to net income a decrease in inventories.
C) Add to net income a decrease in accounts payable.
D) Deduct from net income an increase in accounts payable.
E) None of the above.

Question 50

In a completed worksheet,

A) the debit column contains the cash inflows.
B) the debit column contains the cash outflows.
C) the credit column contains the cash inflows.
D) the credit column contains only operating cash flows.
E) None of the above.

Question 51

Oliver Company provided the following information for the years 2011 and 2012:
Operating Cash Flows
Refer to the information for Oliver Company on the previous page.
Required:
Prepare a schedule that provides operating cash flows for the year 2012 using the direct method.

Question 52

The following balance sheets were taken from the records of Blalock Company:
Additional transactions were as follows:
a. Sold equipment costing $12,000 with accumulated depreciation of $9,000 for $2,000.
b. Retired bonds at a price of $60,000 on December 31.
c. Earned net income for the year of $68,000; paid cash dividends of $20,000.
Statement of Cash Flows, Worksheet
Refer to the information for Blalock Company on the previous page.
Required:
Prepare a statement of cash flows using the worksheet approach.

Question 53

Explain how a company can report a loss and still have a positive net operating cash flow.

Question 54

Activity Classification
During the last 2 years of operations, Barnes Company had the following transactions:
a. Purchased a new plant for $5,000,000.
b. Issued bonds with a 6-year maturity date for $2,000,000.
c. Reported profits of $7,000,000 for the most recent year.
d. Sold equipment for $500,000.
e. Paid cash dividends of $2,000,000.
f. Sold a 30% interest in a company.
g. Retired a long-term note payable.
h. Reported a loss for the year ($500,000).
i. Issued common stock for $1,000,000.
Required:
Classify each of these transactions as an operating activity, an investing activity, or a financing activity and indicate whether the activity is a source of cash or a use of cash.

Question 55

Classification of Transactions
Consider the following independent activities.
a. Payment of a cash dividend
b. Amortization of intangible asset
c. Gain on disposal of equipment
d. Exchange of common stock for land
e. Increase in accrued wages
f. Retirement of preferred stock
g. Purchase of a new plant
h. Depreciation expense
i. Decrease in accounts payable
j. Increase in accounts receivable
k. Proceeds from the sale of land
l. Increase in prepaid expenses
m. Retirement of a bond
n. Purchase of a 60% interest in another company
Required:
Classify the following transaction as operating activities, investing activities, financing activities, or financing/investing not affecting cash. If an activity is an operating activity, indicate whether it will be added to or deducted from net income to compute cash from operations.

Question 56

Direct and Indirect Methods
The comparative balance sheets and income statement of Piura Manufacturing follow.
Additional transactions for 2012 were as follows:
a. Cash dividends of $8,000 were paid.
b. Equipment was acquired by issuing common stock with a par value of $6,000. The fair market value of the equipment is $32,000.
c. Equipment with a book value of $12,000 was sold for $6,000. The original cost of the equipment was $24,000. The loss is included in operating expenses.
d. Two thousand shares of preferred stock were sold for $4 per share.
Required:
1. Prepare a schedule of operating cash flows using (a) the indirect method and (b) the direct method.
2. Prepare a statement of cash flows using the indirect method.
3. Prepare a statement of cash flows using a worksheet similar to the one shown in Cornerstone 15-8 (p. 643).
4. Form a group with two to four other students, and discuss the merits of the direct and indirect methods. Which do you think investors might prefer Should the FASB require all companies to use the direct method

Question 57

Which of the following adjustments to net income is needed to obtain cash flows

A) Eliminate gains on sale of equipment.
B) Deduct from net income all noncash expenses (e.g., depreciation and amortization).
C) Deduct from net income any increases in current liabilities.
D) Add to net income any increases in inventories.
E) All of the above.

Question 58

Change in Cash
Blaylock Company provided the following information:
Required:
1. Calculate the change in cash.
2. Explain the role of the change in cash flow in the statement of cash flows.

Question 59

The income statement for Piura Merchandising Corporation is as follows:
Other information is as follows:
a. Accounts payable decreased by $20,000 during the year.
b. Accounts receivable increased by $20,000.
c. All wages were paid at the beginning of the year; at the end of the year, wages payable had a balance of $12,000.
d. Prepaid insurance increased by $24,000 during the year.
Operating Cash Flows
Refer to the information for Piura Merchandising Corporation above.
Required:
Prepare a schedule that provides the operating cash flows for the year using the indirect method.

Question 60

Management of Statement of Cash Flows, Ethical Issues
Fred Jackson, president and owner of Bailey Company, is concerned about the company's ability to obtain a loan from a major bank. The loan is a key factor in the firm's plan to expand its operations. Demand for the firm's product is high-too high for the current production capacity to handle. Fred is convinced that a new plant is needed. Building the new plant, however, will require an infusion of new capital. Fred calls a meeting with Karla Jones, financial vice president.
Fred: Karla, what is the status of our loan application Do you think that the bank will approve
Karla: Perhaps, but at this point, there is a real risk. The loan officer has requested a complete set of financials for this year and the past 2 years. He has indicated that he is particularly interested in the statement of cash flows. As you know, our income statement looks great for all 3 years, but the statement of cash flows will show a significant increase in receivables, especially for this year. It will also show a significant increase in inventory, and I'm sure that he'll want to know why inventory is increasing if demand is so great that we need another plant. Both of these effects show decreasing cash flows from operating activities.
Fred: Well, it is certainly true that cash flows have been decreasing. One major problem is the lack of operating cash. This loan will solve that problem. Bill Lawson has agreed to build the plant for the amount of the loan but will actually charge me for only 95% of the stated cost. We get 5% of the loan for operating cash. Bill is willing to pay 5% to get the contract.
Karla: The loan may help with operating cash flows, but we can't get the loan without showing some evidence of cash strength. We need to do something about the increases in inventory and receivables that we expect for this year.
Fred: The increased inventory is easy to explain. We had to work overtime and use subcontractors to take care of one of our biggest customers. That inventory will be gone by the first of next year.
Karla: The problem isn't explaining the inventory. The problem is that the increase in inventory decreases our operating cash flows and this shows up on the statement of cash flows. This effect, coupled with the increase in receivables, depicts us as being cash poor. It'll definitely hurt our chances.
Fred: I see. Well, this can be solved. The inventory is for a customer that I know well. She'll do me a favor. I'll simply get her to take delivery of the inventory early, before the end of our fiscal year. She can pay me next year as originally planned.
Karla: Fred, all that will do is shift the increase from inventory to receivables. It'll still report the same cash position.
Fred: No problem. We'll report the delivery as a cash sale, and I'll have Bill Lawson advance me the cash as a temporary loan. He'll do that to get the contract to build our new plant. In fact, we can do the same with some of our other receivables. We'll report them as collected, and I'll get Bill to cover. If he understands that this is what it takes to get the loan, he'll cooperate. He stands to make a lot of money on the deal.
Karla: Fred, this is getting complicated. The bank will have us audited each year if this loan is approved. If an audit were to reveal some of this manipulation, we could be in big trouble, particularly if the company has any trouble in repaying the loan.
Fred: The company won't have any trouble. Sales are strong, and the problem of collecting receivables can be solved, especially given the extra time that the 5% of the loan proceeds will provide.
Required:
1. Form a group with two to four other students. Discuss the propriety of the arrangement that Fred has with Bill Lawson concerning the disbursement of the proceeds from the loan.
2. In your group, discuss the propriety of the actions that Fred is proposing to improve the firm's statement of cash flows. Suppose that there is very little risk that the loan will not be repaid. Does this information affect your assessment
3. Assume that Karla is subject to the Institute of Management Accountant's (IMA) code of ethics. Look up this code, and identify the standards of ethical conduct that will be violated, if any, by Karla should she agree to cooperate with Fred's scheme.
4. Using the IMA code of ethics, if you were in Karla's position, what would you do (suppose that Fred insists on implementing his plan) Now, answer the question assuming that Fred is willing to consider alternative ways to solve the company's problems.

Question 61

What are cash equivalents How are cash equivalents treated in preparing a statement of cash flows

Question 62

In computing the period's net operating cash flows, why are increases in current liabilities and decreases in current assets added back to net income

Question 63

Operating Cash Flows: Indirect Method
Blaylock Company provided the following partial comparative balance sheets and the income statement for 2012.
Required:
Compute operating cash flows using the indirect method.

Question 64

The income statement for Piura Merchandising Corporation is as follows:
Other information is as follows:
a. Accounts payable decreased by $20,000 during the year.
b. Accounts receivable increased by $20,000.
c. All wages were paid at the beginning of the year; at the end of the year, wages payable had a balance of $12,000.
d. Prepaid insurance increased by $24,000 during the year.
Operating Cash Flows, Direct Method
Refer to the information for Piura Merchandising Corporation on the previous page.
Required:
Prepare a schedule of operating cash flows using the direct method.