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cash flow from operations mdash comparison of indirect and direct methods the statem 693036

Cash Flow from Operations—Comparison of Indirect and Direct Methods

The statement of cash flows for Riker Company (prepared using the indirect method) follows.

Consider the following additional information:

(a) Sales for the year totaled $812,350. Cost of goods sold was $500,000. Operating expenses were $100,000. Interest expense was $23,000. Income tax expense was $40,430.

(b) Of the decrease in accounts payable, 80% is related to inventory purchases; the remaining

20% related to operating expenses.

(c) Depreciation and amortization are period costs; they do not enter into the computation of cost of goods sold.

Riker Company
Statement of Cash Flows (Indirect Method)
For the Year Ended December 31, 2008

Cash flows from operating activities:

Net income






Depreciation expense              



Amortization expense             



Loss on sale of machine            



Gain on retirement of long term debt  



Increase in accounts receivable       



Decrease in inventory             



Decrease in prepaid operating expenses



Decrease in accounts payable        



Increase in interest payable          



Increase in income taxes payable      



Net cash provided by operating activities



Cash flows from investing activities:



Sale of machine                  



Purchase of fixed assets            



Net cash used in investing activities    



Cash flows from financing activities:



Retirement of long term debt        



Payment of dividends              



Net cash used in financing activities    



Net decrease in cash                 



Cash at beginning of year              



Cash at end of year                  



Instructions: Prepare the Operating Activities section of the statement of cash flows for Riker Company using the direct method.

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