Question P12-5
GRANIA COMPANY
Statement of Cash Flow-Indirect Method
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For the year ended December 31, 2007 $ $ Cash flows from operating expenses | | | | net income | | | 230,000 | Adjustments to reconcile net income to Net cash | | | | provided by op activities: | | | | Depreciation expense | 60,000 | | | Loss on sale of equipment | 16,000 | | | Increase in accounts receivable | (15,000) | | | Increase in accounts payable | 13,000 | | | Increase in income taxes payable | 4,000 | | 78,000 | Net cash provided by operating activities | | | 308,000 | | | | | Summary To prepare the statement of cash flows using the indirect method for the operating activities we followed the formula, Net income +/- Adjustments = Net Cash Provided / Used by Operating Activities. The net income in this case was provided as $230,000. This gave us the number we would start with. We then needed to add back noncash expenses, deduct gains and add losses from financing activities and then look at the changes to non-cash current assets. We started by adding in the depreciation expense this was $60,000. We then added back the loss on sale of equipment of $16,000 these were deductions in the income statement. Once we had added these we needed to find the difference between 2006 and 2007 statement of cash flows. The difference between 2006 and 2007 were increases in accounts receivable, accounts payable, and income taxes payable of $15000, $13000, and $4000 respectively. We then took the increase of $15,000 in accounts receivable and