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Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby
Edition 4ISBN: 978-0078025372Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby
Edition 4ISBN: 978-0078025372 Exercise 78
Understanding the Computation of Cash Flows from Operating Activities (Indirect Method)
Suppose your company sells services of $150 in exchange for $120 cash and $30 on account. Depreciation of $50 also is recorded.
Required:
1. Show the journal entries to record these transactions.
2. Calculate the amount that should be reported as net cash flow from operating activities.
3. Calculate the amount that should be reported as net income.
4. Show how the indirect method would convert net income (requirement 3) to net cash flow from operating activities (requirement 2).
5. What general rule about converting net income to operating cash flows is revealed by your answer to requirement 4
Suppose your company sells services of $150 in exchange for $120 cash and $30 on account. Depreciation of $50 also is recorded.
Required:
1. Show the journal entries to record these transactions.
2. Calculate the amount that should be reported as net cash flow from operating activities.
3. Calculate the amount that should be reported as net income.
4. Show how the indirect method would convert net income (requirement 3) to net cash flow from operating activities (requirement 2).
5. What general rule about converting net income to operating cash flows is revealed by your answer to requirement 4
Explanation
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Verified
1.
Cash and accounts receivable are curr...
Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby
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