Depreciation and cash flows
Depreciation and cash flows
Your boss asks you to examine the following income statements of Hamilton Hardware and Watson Glass:
| Â |
Hamilton Hardware
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Watson Glass
|
|
Sales
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$900,000
|
$900,000
|
|
Cost of goods sold
|
(400,000)
|
400,000
|
|
Depreciation expense
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(50,000)
|
(100,000)
|
|
Other expenses
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(200,000)
|
(200,000)
|
|
Net income
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$250,000
|
$200,000
|
In the notes to the financial statements, you notice that Hamilton Hardware uses the straight-line method of depreciation and that Watson Glass uses the double-declining-balance method.
a. Assume that the dollar amounts for sales, cost of goods sold, and other expenses reflect total cash collections from customers, total cash paid for inventory, and total cash paid for other expenses, respectively. Compute cash provided (used) by operating activities for each company, using each of the following:
- The direct method format
- The indirect method format
b. Why is the cash provided (used) by operations different from net income? Which of the two methods shows this more clearly?
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c. Would you agree of disagree with the following statement? Depreciation is an important source of cash for most companies. Explain your answer.
Answers
Status NEW
Posted 16 May 2017 09:05 AM
My Price 6.00
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Attachments
file 1494928769-Answer.docx preview (188 words )
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