PROBLEM 13.4A Reporting Operating Cash Flows by the Direct MethodPLO3

PROBLEM 13.4A

Reporting Operating

Cash Flows by the

Direct MethodPLO3

C

DR

LO8

TREECE INC.

INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31 2011

Revenue:

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2850000

Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104000

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70000

Gain on sales of marketable securities . . . . . . . . . . . . . . . . . . . 4000

Total revenue and gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3028000

Costs and expenses:

Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1550000

Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 980000

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185000

Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90000

Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2805000

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 223000

End of Beginning

Year of Year

Selected account balances:

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 650000 $ 720000

Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9000 6000

Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800000 765000

Short-term prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20000 15000

Accounts payable (merchandise suppliers) . . . . . . . . . . . . . . . . 570000 562000

Accrued operating expenses payable . . . . . . . . . . . . . . . . . . . . 65000 94000

Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21000 12000

Accrued income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . 22000 35000

Problem 13.5A

Using the information presented in Problem 13.4A prepare a partial statement of cash flows for

the current year showing the computation of net cash flows from operating activities by the indi-

rect method. Explain why the decline in accounts receivable over the year was added to net income

in computing the cash flows from operating activities.