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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.
Sales
$26,000,000
Less: Cost of goods sold
$15,200,000
Operating expenses (including depreciation of $1,640,000)
7,600,000
Income taxes expense
800,000
23,600,000
Net income
$2,400,000
Selected accounts from Conti Chemical's balance sheets for 2014 and 2013 follow
2014
2013
Accounts receivable
$4,800,000
$3,400,000
Inventory
1,680,000
2,040,000
Prepaid expenses
520,000
360,000
Accounts payable
1,920,000
1,440,000
Accrued liabilities
120,000
200,000
Income taxes payable
280,000
240,000
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.
Cash Flow Classification
Effect on Cash Flows
Transaction
Operating Activity
Investing Activity
Financing Activity
Noncash Transaction
Increase
Decrease
No Effect
1. Increased accounts payable.
2. Decreased inventory.
3. Increased prepaid insurance.
4. Earned a net income.
5. Declared and paid a cash dividend.
6. Issued stock for cash.
7. Retired long-term debt by issuing stock.
8. Purchased a long-term investment with cash.
9. Sold trading securities at a gain.
10. Sold a machine at a loss.
11. Retired fully depreciated equipment.
12. Decreased interest payable.
13. Purchased available-for-sale securities (long-term).
14. Decreased dividends receivable.
15. Decreased accounts receivable.
16. Converted bonds to common stock.
17. Purchased 90-day Treasury bill.
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