Operating Cash Flows under the Indirect Method
As the new controller for Overseas Inc., you have the responsibility of preparing the year-end financial statements for the company for year 20x2. Overseas has a fiscal year end of December 31. You have already completed the balance sheet and income statement, so your final task is to prepare the company’s statement of cash flows. Overseas has prepared the operating section of the statement of cash flows using the indirect method, and you wish to maintain consistency in this regard.
Selected financial information from the current-year income statement and comparative balance sheet are as follow:
20x2 Income Statement:
Sales Revenue: $6,000,000
Cost of Goods Sold: (4,000,000)
Other Operating Expenses (85,000)
Depreciation and Amortization: (100,000)
Gain on Sale of Fixed Assets 50,000
Income Tax Expense (200,000)
Net Income: 1,665,000
Balance Sheet:
20x2 20x1
Assets:
Cash and Equivalents 270,000 200,000
Accounts Receivable 400,000 450,000
Inventory 300,000 200,000
Prepaid Insurance 150,000 125,000
Liabilities:
Accounts Payable 75,000 125,000
Income Taxes Payable 20,000 15,000
Other Expenses Payable 30,000 30,000
Note: Other Operating Expenses includes $25,000 insurance expense.
Required
Prepare the operating cash flows section of the statement of cash flows using the indirect method.