Task 1- Cash Flows from Operating Activities: Indirect Method
The condensed single-step income statement for the year ended December 31, 2014, of Conti Chemical Company, a distributor of farm fertilizers and herbicides, follows.
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Sales
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$26,000,000
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Less: Cost of goods sold
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$15,200,000
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Operating expenses (including depreciation of $1,640,000)
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7,600,000
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Income taxes expense
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800,000
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23,600,000
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Net income
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$2,400,000
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Selected accounts from Conti Chemical's balance sheets for 2014 and 2013 follow
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2014
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2013
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Accounts receivable
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$4,800,000
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$3,400,000
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Inventory
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1,680,000
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2,040,000
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Prepaid expenses
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520,000
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360,000
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Accounts payable
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1,920,000
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1,440,000
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Accrued liabilities
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120,000
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200,000
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Income taxes payable
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280,000
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240,000
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Prepare a schedule of cash flows from operating activities using the indirect method.
Task 2- Classification of Cash Flow Transactions
CONCEPT Analyze each transaction listed in the table that follows and place X's in the appropriate columns to indicate the transaction's classification and its effect on cash flows using the indirect method.
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Cash Flow Classification
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Effect on Cash Flows
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Transaction
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Operating Activity
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Investing Activity
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Financing Activity
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Noncash Transaction
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Increase
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Decrease
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No Effect
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1. Increased accounts payable.
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2. Decreased inventory.
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3. Increased prepaid insurance.
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4. Earned a net income.
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5. Declared and paid a cash dividend.
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6. Issued stock for cash.
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7. Retired long-term debt by issuing stock.
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8. Purchased a long-term investment with cash.
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9. Sold trading securities at a gain.
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10. Sold a machine at a loss.
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11. Retired fully depreciated equipment.
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12. Decreased interest payable.
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13. Purchased available-for-sale securities (long-term).
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14. Decreased dividends receivable.
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15. Decreased accounts receivable.
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16. Converted bonds to common stock.
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17. Purchased 90-day Treasury bill.
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