How to Calculate Operating Cash Flows Using the Indirect Method Exhibit 14.2 (p. 795) showed the following information on current assets and liabilities for Lemmons Company: Net Changes 20X1 20X2 Debit Credit Current assets Accounts receivable $140,000 $112,500 $27,500 Inventories 50,000 600,000 $10,000 Current liabilities Accounts payable 120,000 95,000 25,000 The income statement for Lemmons Company follows: Lemmons Company Income Statement For the Year Ended December 31, 20X2 Revenues $ 480,000 Gain on sale of equipment 20,000 Cost of goods sold (260,000) Depreciation expense (50,000) Interest expense (10,000) Net income $ 180,000 Required: Compute operating cash flows using the indirect method.

Net income $180,000 Add (deduct) adjusting items: Decrease in accounts receivable 27,500 (Type A adjustment) Decrease in accounts payable (25,000) (Type B adjustment) Increase in inventories (10,000) (Type B adjustment) Depreciation expense 50,000 (Type C adjustment) Gain on sale of equipment (20,000) (Type D adjustment) Net cash from operating activities $202,500

Question 14.3: How to Calculate Operating Cash Flows Using the Indirect Met...

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How to Calculate Operating Cash Flows Using the Indirect Method
Exhibit 14.2 (p. 795) showed the following information on current assets and liabilities for Lemmons Company:

			Net Changes
	20X1	20X2	Debit	Credit
Current assets
Accounts receivable	$140,000	$112,500		$27,500
Inventories	50,000	600,000	$10,000
Current liabilities
Accounts payable	120,000	95,000	25,000

The income statement for Lemmons Company follows:

Lemmons Company
Income Statement
For the Year Ended December 31, 20X2

Revenues $ 480,000
Gain on sale of equipment 20,000
Cost of goods sold (260,000)
Depreciation expense (50,000)
Interest expense (10,000)
Net income $ 180,000

Required:
Compute operating cash flows using the indirect method.

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