Spectacular Corporation began the year with accounts receiva

Spectacular Corporation began the year with accounts receivable, inventory, and prepaid expenses totaling $67,000. At the end of the year,

Spectacular had a total of $78,000

for these current assets. At the beginning of the year, it owed current liabilities of $44,000,and at year-end, current liabilities totaled $43,000. Net income for the year was $82,000. Included in net income was a $3,000 gain on the sale of land and depreciation expense of $10,000.

Show how Spectacular should report cash flows from operating activities for the year. The company uses the indirect method

Solution

cash flows from operating activities

Net income $82,000

Less: gain on the sale of land ($3000)

Add : depreciation expense ($10,000)

89000

less: increase in current assets[78000-67000] (11000)

less: decrease in current liabilities[44000-43000] (1000)

Net cash provided by operating activities $77000

Note:- Gain on the sale of land is non operating activities and depreciation expense is not a cash expense.Therefore, excluded from net income.