Reference no: EM132683865

Problem - Cash flows from operating activities-indirect method

The income statement disclosed the following items for 2013:

Depreciation expense $21,600

Gain on disposal of equipment 12,600

Net income 190,500

Balances of the current asset and current liability accounts changed between December 31, 2012, and December 31, 2013, as follows:

Accounts receivable $3,360

Inventory 1,920*

Prepaid insurance 720*

Accounts payable 2,280*

Income taxes payable 720

Dividends payable 510

*Decrease

Required -

a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method.

b. Briefly explain why cash flows from operating activities is different than net income.