E12-5 Understanding the Computation of Cash Flows from Operating Activities (Indirect Method) [LO 12-2]

[The following information applies to the questions displayed below.]

Suppose your company sells goods for $300, of which $200 is received in cash and $100 is on account. The goods cost your company $125 and were paid for in a previous period. Your company also recorded salaries and wages of $70, of which only $30 has been paid in cash

E12-5 Part 1

Required:

1.

Prepare the journal entries to record these transactions. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

1.Record the sales revenue of $200 for cash and $100 on account and record the cost of goods sold of $125 using one journal entry.

2. Record the salaries and wages expense of $70.

E12-5 Part 2,3 and 4

2.

Calculate the amount that should be reported as net cash flow from operating activities.

3.

Calculate the amount that should be reported as net income.

4.	Show how the indirect method would convert net income (requirement 3) to net cash flow from operating activities (requirement 2). (Amounts to be deducted should be indicated with a minus sign.)