Prepare a schedule of cash flows from operating activities

Question

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.