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25 March, 09:08

The current sections of Birmingham Inc.’s balance sheets at December 31, 2019 and 2020, are presented here. Birmingham’s net income for 2020 was $193,000. The income statement included depreciation expense, $25,000, amortization expense, $10,000, and a gain on disposal of equipment, $7,000. The equipment was sold for $47,000. Birmingham also issued bonds for $60,000. 2020 2019Current assets Cash $417,000 $ 99,000 Accounts receivable 120,000 93,000Inventory 159,000 176,000Prepaid expenses 29,000 24,000Total current assets $725,000 $392,000 Current liabilities Accrued expenses payable $ 17,000 $ 6,000 Accounts payable 88,000 94,000Total current liabilities $105,000 $100,000 InstructionsPrepare the net cash provided by operating activities section of the company’s statement of cash flows for the year ended December 31, 2020 using the indirect method.

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  1. 25 March, 12:25
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    Net Income 193,000

    Non-monetary terms:

    Depreciation expense 25,000

    amortization expense 10,000

    gain on disposal (7,000)

    Adjusted Income 221,000

    Change in Working Capital:

    Increase in A/R (27,000)

    Decreasein Inv 17,000

    Increase in Prepaid (5,000)

    Increase Accrued / P 11,000

    Decreasein A/P (6,000)

    Change In Working Capital (10,000)

    From Operating Activities 211,000

    Investing

    Sale of Equipment 47,000

    Financing

    Bonds Issued 60,000

    Cash Flow 318,000

    Beginning Cash 99,000

    Cash Flow 318,000

    Ending Cash 417,000

    Explanation:

    We first remove the non. monetary concetps from the net income.

    Then we adjust for the change in working capital which are the incrase and decrease in the current assets and liabilities account

    Increase in asset and decrease in liabilities represent cash outflow

    while the opposite is true when an asset decrease (convert to cash) or a liablity increase (delay of the payment)
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