Cash flows from operating activities (indirect and direct methods).Presented below is the income statement of Cowan, Inc.: $$\begin{array} { l r }
\text { Sales revenue } & \$ 380,000 \
\text { Cost of goods sold } & 225,000 \
\text { Gross profit } & \$ 155,000 \
\text { Operating expenses } & 85,000 \
\text { Income before income taxes } & 70,000 \
\text { Income taxes } & 28,000 \
\text { Net income } & \$ 42,000
\end{array}$$ In addition, the following information related to net changes in working capital is presented: The company also indicates that depreciation expense for the year was $16,700 and that the deferred tax liability account increased $2,600.
InstructionsPrepare a schedule computing the net cash flow from operating activities that would be shown on a statement of cash flows:
(a) using the indirect method.
(b) using the direct method.

Question

Cash flows from operating activities (indirect and direct methods).Presented below is the income statement of Cowan, Inc.: $$\begin{array} { l r } 
\text { Sales revenue } & \$ 380,000 \
\text { Cost of goods sold } & 225,000 \
\text { Gross profit } & \$ 155,000 \
\text { Operating expenses } & 85,000 \
\text { Income before income taxes } & 70,000 \
\text { Income taxes } & 28,000 \
\text { Net income } & \$ 42,000
\end{array}$$ In addition, the following information related to net changes in working capital is presented:  The company also indicates that depreciation expense for the year was $16,700 and that the deferred tax liability account increased $2,600.
InstructionsPrepare a schedule computing the net cash flow from operating activities that would be shown on a statement of cash flows:
(a) using the indirect method.
(b) using the direct method.

Quizplus · Accepted Answer

The Answer of Cash flows from operating activities (indirect and direct methods).Presented below is the income statement of Cowan, Inc.: $$\begin{array} { l r } 
\text { Sales revenue } & \$ 380,000 \
\text { Cost of goods sold } & 225,000 \
\text { Gross profit } & \$ 155,000 \
\text { Operating expenses } & 85,000 \
\text { Income before income taxes } & 70,000 \
\text { Income taxes } & 28,000 \
\text { Net income } & \$ 42,000
\end{array}$$ In addition, the following information related to net changes in working capital is presented:  The company also indicates that depreciation expense for the year was $16,700 and that the deferred tax liability account increased $2,600.
InstructionsPrepare a schedule computing the net cash flow from operating activities that would be shown on a statement of cash flows:
(a) using the indirect method.
(b) using the direct method.

Cash Flows from Operating Activities (Indirect and Direct Methods) In Addition, the Following Information Related to Net Changes in Is