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Consider the following transactions pertaining to Retail Traders Company. Amounts in parentheses indicate a decrease in the account. Assets = Liabilities + Owners Equity Explanation

Consider the following transactions pertaining to Retail Traders Company. Amounts in parentheses indicate a decrease in the account.

Assets

=

Liabilities

+

Owners Equity

Explanation

Cash

Inventory

Accounts Payable

Common Stock

Retained Earnings

Beginning Balance

$10,000

$ 5,000

$3,000

$ 2,000

Credit purchases

100,000

100,000

Cash sales

$115,000

115,000

Cost of goods sold

(90,000)

(90,000)

Cash paid to supporters

(85,000)

(85,000)

Ending balance

$30,000

$20,000

$20,000

$3,000

$27,000

Required:

  1. Prepare an income statement
  2. Prepare a direct method cash flow statement
  3. Prepare an indirect method cash flow statement
  4. Provide an intuitive explanation of how the adjustments made to net income in the indirect method cash flow statement convert the accrual numbers to cash flow numbers.

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