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Prepare a schedule computing the net cash flow from operating activities that would be shown on a statement of cash flows: a. Using the indirect method and interpret the result! b. Using the direct method and interpret the result!

Prepare a schedule computing the net cash flow from operating activities that would be shown on a statement of cash flows: a. Using the indirect method and interpret the result! b. Using the direct method and interpret the result!

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Presented below is the income statement of Cowan, Inc for the year ended December 31, 2021. Sales € 380,000 Cost of goods sold 225,000 Gross profit 155,000 85,000 70,000 28,000 Operating expenses Income before income taxes Income taxes Net income € Cash Accounts receivable Inventories Salaries payable (operating expenses) Accounts payable Income tax payable In addition, the following information related to net changes in working capital is presented: Debit Credit 42,000 € 12,000 15,000 19,400 € 8,000 12,000 3,000 The company also indicates that depreciation expense for the year was £16,700 and that the deferred tax liability account increased £2,600. Required: Prepare a schedule computing the net cash flow from operating activities that would be shown on a statement of cash flows: a. Using the indirect method and interpret the result! b. Using the direct method and interpret the result!
Transcribed Image Text:Presented below is the income statement of Cowan, Inc for the year ended December 31, 2021. Sales € 380,000 Cost of goods sold 225,000 Gross profit 155,000 85,000 70,000 28,000 Operating expenses Income before income taxes Income taxes Net income € Cash Accounts receivable Inventories Salaries payable (operating expenses) Accounts payable Income tax payable In addition, the following information related to net changes in working capital is presented: Debit Credit 42,000 € 12,000 15,000 19,400 € 8,000 12,000 3,000 The company also indicates that depreciation expense for the year was £16,700 and that the deferred tax liability account increased £2,600. Required: Prepare a schedule computing the net cash flow from operating activities that would be shown on a statement of cash flows: a. Using the indirect method and interpret the result! b. Using the direct method and interpret the result!
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