The Following Changes Were Noted from the Statement of Financial

question 10

Essay

The following changes were noted from the statement of financial position: trade receivables increased $8,000; inventory increased $4,000; trade payables increased $6,000; prepaid expense decreased $2,000; accrued liability decreased $5,000; and interest payable increased $1,000 ABC Corporation Income Statement For the Year Ended December 31, 20X7 $$\begin{array} { | l | r | r | } \hline \text { Net sales } & & \$ 100,000 \\\hline \text { Cost of goods sold } & & \$ ( 40,000 ) \\\hline \text { Gross profit on sales } & &\$60,000 \\\hline \text { Various operating expenses } & \$ 25,000 & \\\hline \text { Depreciation expense } &5,000 & \\\hline \text { Interest expense } & 2,000 \\\hline \text { Income tax expense } & \underline { 4,000 } & \$ ( 63,000 ) \\\hline \text { Net earnings } & & \$ 24,000 \\\hline\end{array}$$ Required: Prepare the operating activities section of the statement of cash flows using the indirect method.

---

Definitions:

Ending Merchandise Inventory

The final value of a company's inventory at the end of an accounting period, calculated by adding purchases to beginning inventory and subtracting cost of goods sold.

Gross Profit Rate

The ratio of gross profit to net sales, expressed as a percentage, indicating the efficiency of sales relative to the cost of goods sold.

Net Sales

The revenue from goods or services sold after deducting returns, allowances for damaged or missing goods, and any discounts allowed.

Operating Expenses

Operating expenses are costs associated with running a business day-to-day, excluding costs linked to producing goods and services.