Prepare the cash flows from operating activities section of the statement of cash flows under the… 1 answer below »

The following income statement and other data are for

Kennesaw Auto Glass Specialists, Inc..

Kennesaw auto glass specialists, Inc.

Income Statement For the year ended 2010 December 31

Sales  

$450,000

Cost of goods sold

1,25,000

Gross margin

$325,000

Operating expenses (other than depreciation) $60,000

$60,000  

Depreciation expense 20,000

20,000

80,000

Net income

$245,000

Changes in current assets (other than cash) and current liabilities during the year were:  

Increase

Decrease

Accounts receivable

$15,000  

Merchandise inventory

$25,000

Prepaid insurance

8,000  

Accounts payable

15,000

Accrued liabilities payable

4,000  

Depreciation was the only noncash item affecting net income.

a. Prepare a working paper to calculate cash flows from operating activities under the direct method.

b. Prepare the cash flows from operating activities section of the statement of cash flows under the direct method.

c. Prove that the same cash flows amount is obtained under the indirect method by preparing the cash flows from operating activities section of the statement of cash  flows under the indirect method. You need not prepare a working paper.

 

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