The Following Information Is From The Comparative Balance Sheets Of Di The following information is from the comparative balance sheets of Discovery Tech Corporation at June 30, 2011 and 2010, in thousands. Current Assets: Cash $2,750 (2011), $2,115 (2010); Accounts Receivable $3,000 (2011), $2,750 (2010); Inventory $1,700 (2011), $1,025 (2010); Prepaid Insurance (amount not provided). Total Current Assets: $7,720 (2011), $6,210 (2010). Current Liabilities: Accounts payable $1,800 (2011), $1,750 (2010); Salaries Payable $3,750 (2011), $3,150 (2010). Total Current Liabilities: $5,550 (2011), $4,900 (2010). Net income for the year ended January 30, 2011, was $425,000. Depreciation expense of $105,000 was included in the operating expenses for the year. Using the indirect method, prepare the cash from operating activities section of the statement of cash flows for Discovery Tech Corporation for the year ended June 30, 2011.
Paper For Above instruction The task involves preparing the cash flows from operating activities section of Discovery Tech Corporation’s statement of cash flows for the year ending June 30, 2011, using the indirect method. This method starts with net income and adjusts for non-cash transactions and changes in working capital, as reflected in the comparative balance sheets. Key to this process are understanding how changes in current assets and current liabilities impact cash flows, and including non-cash expenses such as depreciation. To begin, the net income for the year is given as $425,000. Starting with this figure, we will adjust it for non-cash depreciation expense. Since depreciation is a non-cash expense, it is added back to net income. This adjustment increases cash flow by $105,000. Next, we examine changes in working capital elements—current assets and current liabilities—between 2010 and 2011. Increase in current assets like accounts receivable, inventory, and prepaid insurance represent uses of cash (because more cash was tied up in these assets), so they are subtracted from net income. Conversely, an increase in current liabilities (accounts payable and salaries payable) signifies sources of cash, so they are added to net income.