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.