Sunshine Enterprises included the following statements in its 2018 financial report:

REQUIRED:
a. Convert each of the accrual-basis income statement accounts to a cash basis. Would you classify this method as directly or indirectly computing cash provided (used) by operating activities?
b. Prepare a proof of results. That is, begin with net income and adjust net income to arrive at cash provided (used) by operating activities. Would you classify this method as directly or indirectly computing cash provided (used) by operating activities?
c. Reconcile the income statement with operating cash flows.

Transcribed Image Text:

INCOME STATEMENT 2018 Service revenue $1,000,000 Salaries and wages expense (250,000) (175,000) (100,000) (60,000) Supplies expense Depreciation expense Insurance expense Rent expense (120,000) $ 295,000 Net income BALANCE SHEET 2018 2017 $ 100,000 $ 120,000 Cash Accounts receivable 150,000 105,000 Supplies Prepaid insurance 85,000 75,000 50,000 10,000 Equipment 500,000 465,000 Less: Accumulated depreciation (325,000) (225,000) Total assets $ 550,000 $ 560,000 Rent payable 20,000 $ 8,000 Common stock ($10 par value) 100,000 100,000 Additional paid-in capital 125,000 125,000 Retained earnings 305,000 327,000 Total liabilities and shareholders' equity $ 550,000 $ 560,000