The Net Income Reported on the Income Statement for the Current

question 21

Essay

The net income reported on the income statement for the current year was $210,000. Depreciation recorded on equipment and a building amount to $62,500 for the year. Balances of the current asset and current liabilities accounts at the beginning and end of the year are as follows: Required:
1) Prepare the cash flows from operating activities section of the statement of cash flows, using the indirect method.
2) If the direct method had been used, would the net cash flow from operating activities have been the same? Explain.

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Definitions:

Fixed Overhead Costs

Expenses that remain constant irrespective of the volume of production or sales, including rent, salaries, and insurance.

Production Volume

The total quantity of goods or services produced by a company during a specific period.

Actual Overhead Costs

The real costs incurred for overhead, including indirect materials, labor, and expenses, in contrast to budgeted or estimated overhead.

Overhead Controllable Variances

The portion of overhead costs that can be directly managed or influenced by decisions made by management.