Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 13 Statement of Cash Flows 605

The net income reported on the income statement for the current year was $255,800. Depreciation

recorded on equipment and a building amounted to $53,500 for the year. Balances of the current

asset and current liability accounts at the beginning and end of the year are as follows:

End of Year Beginning of Year

Cash $ 42,000 $ 44,200

Accounts receivable (net) 65,400 67,000

Inventories 125,900 112,600

Prepaid expenses 5,800 6,000

Accounts payable (merchandise creditors) 61,400 67,500

Salaries payable 8,300 7,900

a. Prepare the cash flows from operating activities section of the statement of cash flows,

using the indirect method.

b. If the direct method had been used, would the net cash flow from operating activities

have been the same? Explain.

The net income reported on the income statement for the current year was $75,000. Depreciation

recorded on store equipment for the year amounted to $22,500. Balances of the current asset and

current liability accounts at the beginning and end of the year are as follows:

End of Year Beginning of Year

Cash $46,700 $43,000

Accounts receivable (net) 28,800 32,500

Merchandise inventory 54,800 49,300

Prepaid expenses 4,000 3,600

Accounts payable (merchandise creditors) 40,500 42,400

Wages payable 25,500 22,500

Prepare the cash flows from operating activities section of the statement of cash flows, using the

indirect method.

Colgate Palmolive Companyis a major consumer health-care products company. The current

assets and current liabilities from two recent balance sheet dates are reproduced below.

Exercise 13-6

Cash flows from operating
activities—indirect method

Goals1, 2

a. Cash flows from
operating activities, $292,100

Exercise 13-7

Cash flows from operating
activities—indirect method

Goal 2

Cash flows from operating
activities, $96,400

Exercise 13-8

Cash flows from operating
activities—indirect method

Goal 2

Colgate Palmolive Company

Current Assets and Current Liabilities

December 31, 2004 and 2003

(in millions) Dec. 31, 2004 Dec. 31, 2003

Current assets:

Cash and cash equivalents $ 319.6 $ 265.3

Accounts receivable (less allowances of

$47.2 and $43.6, respectively) 1,319.9 1,222.4

Inventories 845.5 718.3

Other current assets 254.9 290.5

Total current assets $2,739.9 $2,496.5

Current liabilities:

Notes and loans payable $ 134.3 $ 103.6

Current portion of long-term debt 451.3 314.4

Accounts payable 864.4 753.6

Accrued income taxes 153.1 183.8

Other accruals 1,127.6 1,090.0

Total current liabilities $2,730.7 $2,445.4