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Q3. The Income statement and cash flow data below are for years 1 and 2 of the same company. For year 1, the cash flow
Q3. The Income statement and cash flow data below are for years 1 and 2 of the same company. For year 1, the cash flow statement is provided using the direct method; for year 2, the indirect method is used. Year 1 Sales COGS SG&A expense Interest expense Net income $ 12,000 7,100 3,700 300 900 Year 2 $ 10,000 Sales 6,000 COGS 3,000 SG&A expense 300 Interest expense 700 Net income Cash Flow Statement Net Income 9,800 Depreciation expense Effect of changes in Accounts receivable -5,800 Inventory -2,000 Accounts payable -275 Accrued liabilities 1,725 Cash from operations 900 1,000 Cash collected from customers Cash paid: -240 Suppliers SG&A Interest Cash from Operations -200 -240 -25 1,195 a. Convert the company's indirect method cash flow statement provided for year 2 to the direct method. (Note: Assume depreciation is included in SG&A expense.) b. Compare the cash receipts and disbursements with the related income statement item. Using your answers to parts a and b, explain why cash from operations declined from year 1 to year 2 (C01, CO2 & CO3) c
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