The income statement and other selected data for Frish Company follow:

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The Income Statement And Other Selected Data For Frish Company Follow:

Required

a. Prepare a schedule of change from accrual basis to cash basis income statement.

b. Using the schedule of change from accrual basis to cash basis income statement computed in (a), present the cash provided by operations, using (1) the direct approach and (2) the indirect approach.

EXPERT ANSWER

Cash basis Income statement for the year ended December 31, 2011 is shown below:

F CompanyStatement of IncomeFor the year ended December 31, 2011
ParticularsAmount $AdjustmentsIncrease/(Decrease)Cash Basis
Net Sales$640,000Increase in accounts receivable(27,000)$613,000
Cost of goods sold360,000Increase in accountspayable(15,000)
Operating expenses:Increase in inventories35,000
Depreciation expense(15,000)365,000
Selling and administrative expenses43,000Decrease in prepaidexpenses$(1,000)
Increase in accruedliabilities(3,000)
Depreciation expense(5,000)34,000
Other expense2,000Amortization of patent$(3,000)
Amortization of bondpremium1,0000
Total Expenses405,000Total Expenses399,000
Income before income tax235,000214,000
Income tax92,000Decrease in incometaxes payable$1,000102,000
Net income$143,000$112,00

b.

Statement of cash provided by operations is shown below:

1.

Direct Method

Calculation of the cash receipts from customers:

Statement of cash provided by the operation using direct method is shown below:

F companyStatement of cash flowsFor the year ended December 31, 2011
ParticularsAmount $Amount $
cash receipts from customers$613,000
Add:
Payments to suppliers$(365,000)
Selling and administrative expenses(34,000)
Income taxes paid(102,00)(501,000)
Cash flow from operating activities$112,000

2.

Indirect Method

Calculation of the increase/decrease in the Assets/Liabilities:

PARTICULARSIncrease/(Decrease )
Amount $
Account Receivable27,000
Inventory35,000
Accounts payable15,000
Pre-paid expenses(1,000)
Accrued liability3,000
Taxes payable(10,000)

Statement of cash provided by operations using indirect method is shown below:

F companyStatement of cash flowsFor the year ended December 31, 2011
ParticularsAmount $Amount $
Net Income143,000
Add:
Depreciation Expense$20,000
Amortization of patent3,000
Amortization of Bond premium(1,000)
Increase in accounts receivable(27,000)
Increase in inventory(35,000)
Increase in accounts payable15,000
Decrease in prepaid expenses1,000
Increase in Accrued liability3,000
Increase in taxes payable(10,000)($31,000)
Cash flow from operating activities$ 112,000