Rattigan Company's income statement contained the condensed information below.
|Rattigan Company Income Statement For the Year Ended December 31, 2014|
|Operating expenses, excluding depreciation||$624,000|
|Loss on disposal of plant assets||25,000||704,000|
|Income before income taxes||266,000|
|Income tax expense||40,000|
Rattigan's balance sheet contained the comparative data at December 31, shown below.
|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:
- Begin with Net Income.
- Add back non-cash items such as Depreciation and Amortization.
- 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.
- 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|
|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|
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from Finance 101: Principles of FinanceChapter 10 / Lesson 4