Exercise 13A-4 Net Cash Provided by Operating Activities [LO13-4]

For the just completed year, Hanna Company had net income of $135,000. Balances in the companys current asset and current liability accounts at the beginning and end of the year were as follows:

	December 31
	End of Year		Beginning of Year
Current assets:
Cash and cash equivalents	$	62,000	$	76,000
Accounts receivable	$	164,000	$	192,000
Inventory	$	426,000	$	343,000
Prepaid expenses	$	11,100	$	14,000
Current liabilities:
Accounts payable	$	360,000	$	390,000
Accrued liabilities	$	7,100	$	12,400
Income taxes payable	$	32,400	$	27,000

The Accumulated Depreciation account had total credits of $46,000 during the year. Hanna Company did not record any gains or losses during the year.

The companys income statement for the year appears below:

Sales	$	1,060,000
Cost of goods sold		575,000
Gross margin		485,000
Selling and administrative expenses		306,000
Income before taxes		179,000
Income taxes		44,000
Net income	$	135,000

Required:

Using the direct method, convert the company's income statement to a cash basis. (Adjustment amounts that are to be deducted should be indicated with a minus sign.)

Hanna Company Direct Method of Determining the Net Cash Flows from Operating Activities Adjustments to a cash basis: Adjustments to a cash basis: Selling and administrative expenses Adjustments to a cash basis: Income taxes Adjustments to a cash basis