Chapter 12, Problem 12.8E

Reporting and Interpreting Cash Flows from Operating Activities from an Analyst’s Perspective (Indirect Method)

Rodriguez Company completed its income statement and comparative balance sheet for the current year and provided the following information:

Income Statement for Current Year
Service revenue		$54,000
Expenses
Salaries	$46,000
Depreciation	4,500
Amortization of copyrights	200
Other expenses	9,700	60,400
Net loss		$ (6,400)
Accounts receivable	$ 8,000	$13,000
Salaries payable	12,000	1,000
Other accrued liabilities	1,000	2,800

In addition, Rodriguez bought a small service machine for $5,000.

Required:

1. 1. Present the operating activities section of the statement of cash flows for Rodriguez Company using the indirect method.
2. 2. What were the major reasons that Rodriguez was able to report a net loss but positive cash flow from operations? Explain why the reasons for the difference between cash flow from operations and net income are important to financial analysts.