The net income reported on the income statement for the current year was $112,000. Depreciation recorded on equipment and a building amount to $20,000 for the year. Balances of the current asset and current liabilities accounts at the beginning and end of the year are as follows:

	End of Year	Beginning of Year
Accounts receivable (net)	70,000	63,000
Inventories	77,000	102,000
Prepaid expenses	4,500	4,000
Accounts payable (merchandise creditors)	58,000	50,000
Salaries payable	6,000	7,500
Cash dividends payable	4,500	6,500

Complete Table 1 and prepare the Cash Flows for Operating Activities section of the Statement of cash flow using the indirect method. (See templates below)

* Table 1. Beginning and End of the year balances.

	End of Year	Beginning of Year	Change
Accounts receivable (net)	70,000	63,000	7,000 Increase
Inventories	77,000	102,000
Prepaid expenses	4,500	4,000
Accounts payable (merchandise creditors)	58,000	50,000
Salaries payable	6,000	7,500
Cash dividends payable	4,500	6,500	2,000 Decrease

* Cash dividends payable is not included in the Cash Flow from Operating Activities section above, please explain why.

Indicate whether each of the following would be added (A) to or deducted (D)

from net income in determining net cash flow from operating activities by the

indirect method:

	Indicate Added (A) or Deducted (D) from Net Income
a) Increase in prepaid expenses
b) Amortization of patents
c) Decrease in salaries payable
d) Gain on sale of fixed assets
e) Decrease in accounts receivables
f) Increase in notes receivables
g) Increase in inventories
h) Depreciation of fixed assets
i) Decrease in accounts payable
j) Increase in income taxes payable

* Cash Flow from Operating Activities (45 points) Net Income $112,000 Adjustments to reconcile net income to net cash flow from operating activities. Add Depreciation Changes in current operating assets and liabilities: INCREASE accounts receivable (7.000) inventories prepaid expenses accounts payable salaries payable Net cash flow from operating activities