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Needing help understanding how to solve for indirect and direct method for the income statement. ABC Company's Income statement and comparative balance sheets for 2019
Needing help understanding how to solve for indirect and direct method for the income statement.
ABC Company's Income statement and comparative balance sheets for 2019 and 2020 are as follows: \begin{tabular}{|c|c|c|c|c|} \hline \multicolumn{5}{|l|}{ ABC Company } \\ \hline \multirow[t]{2}{*}{ Balance Sheets } & & & Change & Effect on \\ \hline & Dec 312020 & Dec 312019 & in 2020 & Cash \\ \hline \multicolumn{5}{|l|}{ Assets } \\ \hline Cash & 13,000 & 17,000 & (4,000) & (4,000) \\ \hline Accounts receivable & 27,000 & 33,000 & (6,000) & (10,000) \\ \hline Inventory & 99,000 & 71,000 & 28,000 & 3,000 \\ \hline Prepaid advertising & 17,000 & 14,000 & 3,000 & (1,000) \\ \hline Long-term investments -- available for sale & 35,000 & 46,000 & (11,000) & (6,000) \\ \hline Fair value adjustments to investments & & (6,000) & 6,000 & 28,000 \\ \hline PPE & 183,000 & 135,000 & 48,000 & 48,000 \\ \hline Accumulated depreciation & (77,000) & (66,000) & (11,000) & 77,000 \\ \hline Total assets & 297,000 & 244,000 & & \\ \hline \multicolumn{5}{|l|}{ Liabilities and Equity } \\ \hline Accounts payable & 32,000 & 19,000 & 13,000 & 1,500 \\ \hline Wages payable & 11,000 & 7,500 & 3,500 & 3,500 \\ \hline Income tax payable & 8,000 & 9,500 & (1,500) & 1,500 \\ \hline Common stock & 144,000 & 130,000 & 14,000 & 9,500 \\ \hline Retained earnings & 102,000 & 84,000 & 18,000 & 18,000 \\ \hline Unrealized loss on investments & - & (6,000) & 6,000 & 12,000 \\ \hline Total liabilities and equity & 297,000 & 244,000 & & \\ \hline \multicolumn{5}{|l|}{ ABC Company } \\ \hline \multicolumn{5}{|l|}{ Income Statement } \\ \hline \multicolumn{5}{|l|}{ For the period ended December 31, 2020} \\ \hline Sales & 390,000 & & & \\ \hline \multirow[t]{2}{*}{ Dividend income } & 10,000 & & & \\ \hline & 400,000 & & & \\ \hline Cost of goods sold & 238,000 & & & \\ \hline Wages expense & 87,000 & & & \\ \hline Advertising expense & 15,000 & & & \\ \hline Depreciation expense & 16,000 & & & \\ \hline Income tax expense & 22,000 & & & \\ \hline Loss on sale of investments & 7,000 & & & \\ \hline Net income & 15,000 & & & \\ \hline \multicolumn{5}{|l|}{ Other Information: } \\ \hline \multicolumn{5}{|c|}{ The company declared and paid $23,000 in cash dividends during 2020} \\ \hline \multicolumn{5}{|l|}{ PPE was purchased for cash in 2020.} \\ \hline \multicolumn{5}{|l|}{ Additional common stock was issued for cash. } \\ \hline Investments costing $11,000 and carried at $ & 0 were sold for & cash at a $2,00 & realized los & sin2020. \\ \hline & & & & \\ \hline Requirements: & & & & \\ \hline 1. Identify the change in account balances fo & 0 and the effect & that change will & have on Cas & \\ \hline 2. Compute ABC's operating cash flow for 2020 usin & indirect method. & & & \\ \hline 3. Compute ABC's operating cash flow for 2020 usin & direct method. & & & \\ \hline ABC Company & & & & \\ \hline Statement of Cash Flow & & & & \\ \hline Indirect Method & Dec 312020 & & & \\ \hline Net income & & & & \\ \hline Depreciation expense & & & & \\ \hline Loss on sale of investments & & & & \\ \hline Accounts receivable & & & & \\ \hline Inventory & & & & \\ \hline Prepaid advertising & & & & \\ \hline Accounts payable & & & & \\ \hline Wages payable & & & & \\ \hline Income tax payable & & & & \\ \hline Cash from operating activities & & & & \\ \hline & & & & \\ \hline ABC Company & & & & \\ \hline Statement of Cash Flow & & & & \\ \hline Direct Method & Dec 312020 & & & \\ \hline Cash received from customers & & & & \\ \hline Cash received as dividends & & & & \\ \hline Cash paid for merchandise purchases & & & & \\ \hline Cash paid to employees & & & & \\ \hline Cash paid for advertising & & & & \\ \hline Cash paid for income taxes & & & & \\ \hline Net cash provided by operating activities & & & & \\ \hline & & & & \\ \hline & & & & \\ \hline \end{tabular}Step by Step Solution
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