Response to the following:
Refer to the data in problem.
1. How much cash is paid to acquire merchandise inventory during year 2011?
2. How much cash is paid for operating expenses during year 2011?
Problem:
Use the indirect method to prepare the cash provided or used from operating activities section only of the statement of cash flows for this company.
ORWELL, INC.
Income Statement
For Year Ended December 31, 2011
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . $468,000
Cost of goods sold . . . . . . . . . . . . . . 312,000
Gross profit . . . . . . . . . . . . . . . . . . . . 156,000
Operating expenses
Depreciation expense . . . . . . . . . $38,600
Other expenses . . . . . . . . . . . . . . 57,000 95,600
Income before taxes . . . . . . . . . . . . . 60,400
Income taxes expense . . . . . . . . . . . 24,600
Net income . . . . . . . . . . . . . . . . . . . . $ 35,800
ORWELL, INC.
Comparative Balance Sheets
December 31, 2011
|
Assets
|
2011
|
2010
|
|
|
|
|
Cash ............................................................
|
$ 95,800
|
$ 25,000
|
|
Accounts receivable, net ....................
|
42,000
|
52,000
|
|
Inventory ........................................
|
86,800
|
96,800
|
|
Prepaid expenses ..............................
|
6,400
|
5,200
|
|
Furniture .........................................
|
110,000
|
120,000
|
|
Accum. depreciation-Furniture ...........
|
(18,000)
|
(10,000)
|
|
Total assets .....................................
|
$323,000
|
$289,000
|
|
Liabilities and Equity
|
|
|
|
Accounts payable ..............................
|
$ 16,000
|
$ 22,000
|
|
Wages payable .................................
|
10,000
|
6,000
|
|
Income taxes payable ........................
|
2,400
|
3,600
|
|
Notes payable (long-term) ..................
|
30,000
|
70,000
|
|
Common stock, $5 par value ...............
|
230,000
|
180,000
|
|
Retained earnings .............................
|
34,600
|
7,400
|
|
Total liabilities and equity ...................
|
$323,000
|
$289,000
|