Cemptex Corporation prepares its statement of cash flows using the indirect method to report operating activities. Net income for the 2021 fiscal year was $719,000. Depreciation and amortization expense of $86,000 was included with operating expenses in the income statement. The following information describes the changes in current assets and liabilities other than cash: Decrease in accounts receivable $ 41,000 Increase in inventory 11,100 Increase in prepaid expenses 10,400 Increase in salaries payable 11,900 Decrease in income taxes payable 17,000 Required: Prepare the operating activities section of the 2021 statement of cash flows. (Amounts to be deducted should be indicated with a minus sign.)

Answer and Explanation:

The preparation of the operating activities section is shown below:

Particulars                                               Amount

Cash flow from operating activities

Net income for the fiscal year               $719,000

Adjustment for non-cash effects:  

Depreciation and amortization             $86,000

Changes in operating assets and liabilities:

Add: Decrease in accounts receivable  $41,000

Less: Increase in inventories                   ($11,100)

Less: Increase in prepaid expenses      ($10,400)

Add: Increase in salary payable              $11,900

Less: Decrease in income tax payable   ($17,000)

Net cash flows from operating activities  $819,400

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