During the year, Hepworth Company earned a net income of $61,725. Beginning and ending balances for the year for selected accounts are as follows:
|
Beginning
|
Ending
|
|
|
Cash
|
$108,000
|
$126,600
|
|
Accounts receivable
|
67,500
|
99,750
|
|
Inventory
|
36,000
|
52,500
|
|
Prepaid expenses
|
27,000
|
30,000
|
|
Accumulated depreciation
|
81,000
|
91,500
|
|
Accounts payable
|
45,000
|
55,125
|
|
Wages payable
|
27,000
|
15,000
|
There were no financing or investing activities for the year. The above balances reflect all of the adjustments needed to adjust net income to operating cash flows.
Required:
1. Prepare a schedule of operating cash flows using the indirect method.
2. Suppose that all the data in used Requirement 1 except that the ending accounts payable and cash balances are not known. Assume also that you know that the operating cash flow for the year was $20,475. What is the ending balance of accounts payable?
3. CONCEPTUAL CONNECTION Hepworth has an opportunity to buy some equipment that will significantly increase productivity. The equipment costs $25,000. Assuming exactly the same data used for Requirement 1, can Hepworth buy the equipment using this year's operating cash flows? If not, what would you suggest be done?