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Rattigan Company's income statement contained the condensed information below. Rattigan's balance...

Question:

Rattigan Company's income statement contained the condensed information below.

Rattigan Company Income Statement For the Year Ended December 31, 2014
Service revenue $970,000
Operating expenses, excluding depreciation $624,000
Depreciation expense 55,000
Loss on disposal of plant assets 25,000 704,000
Income before income taxes 266,000
Income tax expense 40,000
Net income $226,000

Rattigan's balance sheet contained the comparative data at December 31, shown below.

2014 2013
Accounts receivable $75,000 $60,000
Accounts payable 41,000 27,000
Income taxes payable 13,000 7,000

Accounts payable pertain to operating expenses.

Prepare the operating activities section of the statement of cash flows using the indirect method. Show amounts that decrease cash flow with either a - sign.

Statement of Cash Flows

A company's statement of cash flows is a report of its sources and uses of cash over a particular time period. The report details the sources and uses of cash from three separate and distinct parts of the business: operating activities, financing activities, and investing activities.

Answer and Explanation:

To determine operating cash flow using the indirect method, do the following steps:

  1. Begin with Net Income.
  2. Add back non-cash items such as Depreciation and Amortization.
  3. Back out any gains or losses on sales of assets, since they will be included in the Investing Activities section of the Statement of Cash Flows.
  4. List cash flow effects of changes in current assets and current liabilities, with decreases in assets and increases in liabilities being sources of cash, and increases in assets and decreases in liabilities being uses of cash.

For Rattigan Company, the Operating Activities section of the Statement of Cash Flows would be the following:

Rattigan Company CASH FLOW STMT Year ended 12/31/14
Net Income $226,000   
Adjustment for Depreciation $55,000
Add: Loss on disposal of plant assets $25,000
Increase in accounts receivable ($15,000)
Increase in accounts payable $14,000
Increase in taxes payable $6,000
Cash generated from operations $311,000   


Learn more about this topic:

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Operating Cash Flow: Definition & Examples

from Finance 101: Principles of Finance

Chapter 10 / Lesson 4
10K

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