Direct and Indirect Methods

Dauve Company reported the following condensed income statement for 2016:

Sales $100,000

Cost of goods sold (58,000)

Gross profit $42,000

Operating expenses:

Depreciation expense $8,000

Salaries expense 12,000 (20,000)

Income before income taxes $22,000

Income tax expense (6,600)

Net income $15,400

During 2016, the following changes occurred in the company's current assets and current liabilities:

Increase

(Decrease)

Cash $3,700

Accounts receivable (5,500)

Inventories 8,900

Accounts payable (purchases) (4,600)

Salaries payable 2,800

Required:

1. By visual inspection, prepare the net cash flow from the operating activities section of Dauve's 2016 statement of cash flows using the indirect method. Use a minus sign to indicate cash outflows or decreases in cash.

DAUVE COMPANY

Statement of Cash Flows (Partial)

For Year Ended December 31, 2016

Operating Activities:

Net income $

Adjustment for noncash income items:

Add: Depreciation expense

Adjustments for cash flow effects from working capital items:

Decrease in accounts receivable

Increase in inventory

Increase in accounts payable

Decrease in salaries payable $

2. By visual inspection, prepare the net cash flow from the operating activities section of Dauve's 2016 statement of cash flows using the direct method. Use a minus sign to indicate cash outflows, a decrease in cash or cash payments.

DAUVE COMPANY

Statement of Cash Flows (Partial)

For Year Ended December 31, 2016

Operating Activities:

Cash Inflows:

Cash received from customers $

Cash inflows from operating activities $

Cash Outflows:

Cash paid to suppliers $

Cash paid to employees

Cash paid for income taxes

Cash outflows for operating activities

Net cash provided by operating activities $