Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 32

Preparing and Evaluating a Simple Statement of Cash Flows (Indirect Method)
Suppose the income statement for Goggle Company reports $95 of net income, after deducting depreciation of $35. The company bought equipment costing $60 and obtained a long-term bank loan for $70. The company's comparative balance sheet, at December 31, is presented on the following page.

Required:
1. Calculate the change in each balance sheet account, and indicate whether each account relates to operating, investing, and/or financing activities.
2. Prepare a statement of cash flows using the indirect method.
3. In one sentence, explain why an increase in accounts receivable is subtracted.
4. In one sentence, explain why a decrease in inventory is added.
5. In one sentence, explain why an increase in wages payable is added.
6. Are the cash flows typical of a start-up, healthy, or troubled company Explain.