A-1

Green Brands, Incorporated (GBI) presents its statement of cash flows using the indirect method. The following accounts and corresponding balances were drawn from GBIs Year 2 and Year 1 year-end balance sheets. Assume all sales and purchases of inventory are made on account.

Account TitleYear 2Year 1Accounts receivable$ 21,600$ 28,700Inventory57,60048,600Prepaid insurance17,70026,800Accounts payable24,70018,600Salaries payable4,8004,150Unearned service revenue6002,900

The Year 2 income statement is shown next.

Income StatementSales$ 607,000 Cost of goods sold(371,000) Gross margin236,000 Service revenue5,200 Insurance expense(38,000) Salaries expense(158,000) Depreciation expense(5,800) Operating income39,400 Gain on sale of equipment4,100 Net income$ 43,500

a.Prepare the operating activities section of the statement of cash flows using the indirect method.

A-2

Shim Company presents its statement of cash flows using the indirect method. The following accounts and corresponding balances were drawn from Shims Year 2 and Year 1 year-end balance sheets.

Account TitleYear 2Year 1Accounts receivable$31,859$38,231Prepaid rent1,5301,339Interest receivable547438Accounts payable10,07712,092Salaries payable2,7713,167Unearned revenue3,1774,236

The income statement reported a $1,260 gain on the sale of equipment, an $940 loss on the sale of land, and $3,300 of depreciation expense. Net income for the period was $51,220. Required Prepare the operating activities section of the statement of cash flows. (Amounts to be deducted should be indicated with a minus sign.)

A-3

Alfonza Incorporated presents its statement of cash flows using the indirect method. The following accounts and corresponding balances were drawn from the companys Year 2 and Year 1 year-end balance sheets.

Account TitleYear 2Year 1Accounts receivable$11,500$17,300Accounts payable7,10010,100

The Year 2 income statement showed net income of $29,100. Required a. Prepare the operating activities section of the statement of cash flows. (Amounts to be deducted should be indicated with a minus sign.)

A-4

An accountant for Southern Manufacturing Companies (SMC) computed the following information by making comparisons between SMCs Year 1 and Year 2 balance sheets. Further information was determined by examining the companys Year 2 income statement. Required For each item described in the list below, indicate whether the amount should be added to or subtracted from the amount of net income when determining the amount of net cash flow from operating activities using the indirect method. Also identify any items that do not affect net cash flow from operating activities because they are reported as investing or financing activities.

Cash flows from operating activities: Net cash flow from operating activities \begin{tabular}{|l|} \hline \\ \hline$ \\ \hline \end{tabular} 1. The amount of cash dividends paid to the stockholders. 2. The amount of a decrease in the balance of an Unearned Revenue account. 3. The amount of an increase in the balance of an Inventory account. 4. The amount of an increase in the balance of a Land account. 5. The amount of a decrease in the balance of a Prepaid Rent account. 6. The amount of an increase in the balance of a Treasury Stock account. 7. The amount of an increase in the balance of the Accounts Receivable account. 8. The amount of a loss arising from the sale of land. 9. The amount of an increase in the balance of the Other Operating Expenses Payable account. 10. The amount of a decrease in the balance of the Bonds Payable account. 11. The amount of depreciation expense shown on the income statement. \begin{tabular}{|l|} \hline \\ \hline \\ \hline \\ \hline \\ \hline \\ \hline \\ \hline \\ \hline \end{tabular} Cash flows from operating activities: GREEN BRANDS, INCORPORATED Statement of Cash Flows (Operating Activities) For the Year Ended December 31, Year 2 Cash flows from operating activities: Add: Add: noncash expenses Net cash flow from operating activities $0 Cash flows from operating activities: Net cash flow from operating activities \begin{tabular}{|l|} \hline \\ \hline$ \\ \hline \end{tabular} 1. The amount of cash dividends paid to the stockholders. 2. The amount of a decrease in the balance of an Unearned Revenue account. 3. The amount of an increase in the balance of an Inventory account. 4. The amount of an increase in the balance of a Land account. 5. The amount of a decrease in the balance of a Prepaid Rent account. 6. The amount of an increase in the balance of a Treasury Stock account. 7. The amount of an increase in the balance of the Accounts Receivable account. 8. The amount of a loss arising from the sale of land. 9. The amount of an increase in the balance of the Other Operating Expenses Payable account. 10. The amount of a decrease in the balance of the Bonds Payable account. 11. The amount of depreciation expense shown on the income statement. \begin{tabular}{|l|} \hline \\ \hline \\ \hline \\ \hline \\ \hline \\ \hline \\ \hline \\ \hline \end{tabular} Cash flows from operating activities: GREEN BRANDS, INCORPORATED Statement of Cash Flows (Operating Activities) For the Year Ended December 31, Year 2 Cash flows from operating activities: Add: Add: noncash expenses Net cash flow from operating activities $0