ACCT 201 Principles of Financial Accounting Practice Final Exam Combined Chapters 9 - 12 Dr. Fred Barbee Solution to Problem #1

Based on the following income statement and balance sheet for Groden Corporation, determine the cash flows from operating activities using the indirect method:

Groden Corporation Income Statement For Year Ended December 31, 2002
Sales		$504,000
Cost of Goods Sold	$327,600
Depreciation	42,000
Other Operating Expenses	125,500	495,100
Other Gains (Losses: Gain on Sale of Equipment		7,200
Incvome before taxes		$16,100
Income Tax Expense		4,800
Net Income		$11,300

Groden Corporation Balance Sheets At December 31, 2001 and 2002
Assets:	2002	2001
Cash	$64,650	$55,800
Accounts Receivable	21,000	29,000
Inventory	58,000	52,100
Equipment	240,000	222,000
Accumulated Depreciation	(106,000)	(96,000)
Total Assets	$277,650	$262,900
Liabilities:
Accounts Payable	$28,400	$23,700
Income Taxes Payable	1,050	1,200
Total Liabilities	$29,450	$24,900
Equity:
Common Stock	$106,000	$106,000
Contributed Capital in Excess of Par Value	18,000	18,000
Retained Earnings	124,200	114,000
Total Equity	$248,200	$238,000
Total Liabilities and Equity	$277,650	$262,900

Solution

Groden Corporation Cash Flows from Operating Activities (Indirect Method) For Year Ended December 31, 2002
Net Income		$11,300
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease in Accounts Receivable	$8,000
Increase in Inventory	(5,900)
Increase in Accounts Payable	4,700
Decrease in Taxes Payable	(150)
Depreciation Expense	42,000
Gain on Sales of Equipment	(7,200)
Total Adjustments		41,450
Net Cash Provided by Operations		$52,750