Convert net income to the cash basis

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Reference no: EM13518252

The following information is taken from the Operating Activities section of the statement of cash flows for the Parks Company for the year just ended:

Net income


$15,000

Adjustments to convert net income to cash basis:



Accounts receivable

$ 3,000


Gain on sale of equipment

(3,000)


Inventory

(7,000)


Accounts payable

4,000


Depreciation expense

11,000


Interest payable

(1,000)


Prepaid expenses

2,000


Income tax payable

(7,000)

2,000

Net cash inflow from operating activities


$17,000

The following information is taken from the company's income statement for the year just ended:

Sales

$96,000

Cost of goods sold

42,000

Gross margin

54,000

Operating Expenses

29,000

Net operating income

25,000

Gain on sale of equipment

3,000

Income before taxes

28,000

Income taxes

13,000

Net income

$15,000

Required:

a. For each of the adjustments to convert net income to the cash basis, indicate whether the account increased or decreased.

b. Determine the net cash provided by operating activities using the direct method.

You need not prepare the formal operating activities section of the statement of cash flows but you should show the adjustments that must be made to sales, expenses, and so forth and the cash flow balances of sales, expenses, etc.

Reference no: EM13518252

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