Line Item Description 20X1 20X2 Current assets: Accounts receivable $750,000 $582,500 Inventories 300,000 320,000 Current liabilities: Wages payable 700,000 515,000 Davis CompanyIncome StatementFor the Year Ended December 31, 20X2 Line Item Description Amount Amount Revenues $3,000,000 Cost of goods sold 1,920,000 Gross margin $1,080,000 Operating expenses Depreciation 270,000 Operating income $ 810,000 Other revenues and expenses Gain on sale of equipment 100,000 Interest expense 10,000 90,000 Net income $ 900,000 Required: Compute operating cash flows using the indirect method.
Line Item Description 20X1 20X2 Current assets: Accounts receivable $750,000 $582,500 Inventories 300,000 320,000 Current liabilities: Wages payable 700,000 515,000 Davis CompanyIncome StatementFor the Year Ended December 31, 20X2 Line Item Description Amount Amount Revenues $3,000,000 Cost of goods sold 1,920,000 Gross margin $1,080,000 Operating expenses Depreciation 270,000 Operating income $ 810,000 Other revenues and expenses Gain on sale of equipment 100,000 Interest expense 10,000 90,000 Net income $ 900,000 Required: Compute operating cash flows using the indirect method.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
| Line Item Description | 20X1 | 20X2 |
|---|---|---|
| Current assets: | ||
| $750,000 | $582,500 | |
| Inventories | 300,000 | 320,000 |
| Current liabilities: | ||
| Wages payable | 700,000 | 515,000 |
Davis CompanyIncome StatementFor the Year Ended December 31, 20X2
| Line Item Description | Amount | Amount |
|---|---|---|
| Revenues | $3,000,000 | |
| Cost of goods sold | 1,920,000 | |
| Gross margin | $1,080,000 | |
| Operating expenses | ||
| |
270,000 | |
| Operating income | $ 810,000 | |
| Other revenues and expenses | ||
| Gain on sale of equipment | 100,000 | |
| Interest expense | 10,000 | 90,000 |
| Net income | $ 900,000 |
Required:
Compute operating
Expert Solution
Step 1: Introduce Cash Flow Statement
CASH FLOW STATEMENT
Cash flow statement provides additional information to user of financial statement. This statement exhibits the flow of incoming and outgoing cash and cash equivalents.
It assesses the ability of the enterprise to generate and utilize cash. Cash Flow Statement is one of the tools for assessing the liquidity and solvency of the enterprise.
Cash Flow Statement explains cash movements under three different heads :—
1. Cash flow from operating activities
2. Cash flow from investing activities
3. Cash flow from financing activities
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