1) The net income reported on the income statement for the current year was $85,000. Depreciation recorded on equipment and a building amount to $16,000 for the year. Balances of the current asset and current liabilities accounts at the beginning and end of the year are as follows:

	End of Year	Beginning of Year
Accounts receivable (net)	70,000	63,000
Inventories	85,000	102,000
Prepaid expenses	4,000	4,500
Accounts payable (merchandise creditors)	58,000	50,000
Salaries payable	6,000	7,500
Cash dividends payable	4,500	6,500

Required:

Complete Table 1 and prepare the Cash Flows for Operating Activities section of the Statement of cash flow using the indirect method. (See templates below)

* Table 1. Beginning and End of the year balances. (4 points)

	End of Year	Beginning of Year	Change
Accounts receivable (net)	70,000	63,000	7,000 Increase
Inventories	85,000	102,000
Prepaid expenses	4,000	4,500
Accounts payable (merchandise creditors)	58,000	50,000
Salaries payable	6,000	7,500
Cash dividends payable	4,500	6,500	2,000 Decrease

* Cash Flow from Operating Activities (45 points)

Net Income $85,000

Adjustments to reconcile net income to net cash flow

from operating activities.

Add Depreciation __________

Changes in current operating assets and liabilities:

INCREASE accounts receivable _ (7,000)___

________________ inventories ___________

_______________ prepaid expenses ___________

_______________ accounts payable ___________

_______________ salaries payable ___________

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Net cash flow from operating activities $__________

* Cash dividends payable is not included in the Cash Flow from Operating Activities section above, please explain why. (1 point)