Use the Following Income Statement and Information About Changes in Noncash

question 165

Essay

Use the following income statement and information about changes in noncash current assets and liabilities to (1) prepare only the cash flows from operating activities section of the statement of cash flows using the indirect method and (2) compute the company's cash flow on total assets ratio for the year assuming that average total assets are $525,250.
Davey Company Income Statement
For Year Ended December 31
$$\begin{array} { l | l | l } \hline \text { Sales } & & \$ 80,000 \\\hline \text { Cost of goods sold } & & 487,000 \\\hline \text { Grost profit } & & \$ 393,000 \\\hline \text { Operating expenses: } & & \\\hline \text { Salaries expense } & \$ 144,000 & \\\hline \text { Rent expense } & 76,000 & \\\hline \text { Depreciation expense } & 45,000 & \\\hline \text { Amortization expens } & 22,000 & \\\hline \text { Utilities expenses } & 12,000 & 299,000 \\\hline \text { Income from operations } & & \$ 94,000 \\\hline \text { Loss on sale of equipment } & & 14,000 \\\hline \text { Income before taxes } & & \$ 80,000 \\\hline \text { Income tax expense } & & 28,500 \\\hline \text { Net Income } & & \$ 51,500 \\\hline & &\end{array}$$ Changes in current asset and current liability accounts for the year that relate to operations follow.
$$\begin{array} { l | l } \text { Increase in accounts receivable } & \text { \$ } 32,000 \\\hline \text { Increase in accounts payable (all accounts } & \\\hline \text { payable transactions are for inventory) } & 13,500 \\\hline \text { Decrease in prepaid expenses } & 9,200 \\\hline \text { Decrease in merchandise inventory } & 14,000 \\\hline \text { Decrease in long-term notes payable } & 20,000\end{array}$$

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