S11-3. (Learning Objective 3: Evaluating operating cash flows—indirect method) Examine the statement of cash flows of Watches, Inc.

Suppose Watches’ operating activities provided, rather than used, cash. Identify three things under the indirect method that could cause operating cash flows to be positive.

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A1 Watches, Inc. Consolidated Statement of Cash Flows (Adapted; in millions) 2 Cash flows from operating activities: 3 Net income Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization Change in assets and liabilities, net of acquired businesses: Accounts receivable Other current assets 10 Accounts payable 11 Year Ended December 31, 20X6 983 278 (587) (200) (98) (298) 123456789DUZELULERDRI22222222 Accrued expenses and other liabilities Unearned revenue Income taxes payable Other, net Net cash used in operating activities 16 Cash flows from investing activities: Purchase of property and equipment Purchase of investments 20 Sale of investments Acquisitions of other companies Net cash used in investing activities 22 Cash flows from financing activities Proceeds from the issuance of shares, net Other, net Net cash provided by financing activities Other, net 27 Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 31 (333) 33 $ (1,991) (26,603) 24,108 (191) (454) (4,940) $ 1,043 473 1,516 22 (3,593) 5,194 $ 1,601 30