Zumbrunn Company’s income statement contained the condensed information below.

ZUMBRUNN COMPANY
Income Statement
For the Year Ended December 31, 2015
Service revenue
$969,400
Operating expenses, excluding depreciation
$624,480
Depreciation expense
59,260
Loss on disposal of equipment
15,940
699,680
Income before income taxes
269,720
Income tax expense
40,520
Net income
$229,200

Zumbrunn’s balance sheet contained the comparative data at December 31, shown below.

2015
2014
Accounts receivable $74,490 $59,020
Accounts payable 41,990 28,710
Income taxes payable 10,850 6,760

Accounts payable pertain to operating expenses.

Prepare the operating activities section of the statement of cash flows using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

To prepare the operating activities section of the statement of cash flows using the indirect method, we need to analyze the changes in the balance sheet accounts and determine how they impact cash flow from operating activities.

Here are the steps to follow:

1. Start with Net Income: The first step is to take the net income from the income statement, which in this case is $229,200.

2. Adjust for Non-Cash Items: Next, we need to consider the non-cash items such as depreciation expense and loss on disposal of equipment. In this case, the depreciation expense is $59,260, and the loss on disposal of equipment is $15,940. Since these are expenses that do not involve actual cash outflows, we add them back to the net income.

Net Income + Depreciation Expense + Loss on Disposal of Equipment
= $229,200 + $59,260 + $15,940
= $304,400

3. Adjust for Changes in Current Assets and Liabilities: The next step is to analyze the changes in current assets and liabilities and adjust for their impact on cash flow from operating activities.

a) Accounts Receivable: The increase in accounts receivable from $59,020 to $74,490 means that less cash has been collected from customers than the revenue recognized. Therefore, we subtract the increase in accounts receivable from the adjusted net income.

Adjusted Net Income - Increase in Accounts Receivable
= $304,400 - ($74,490 - $59,020)
= $304,400 - $15,470
= $288,930

b) Accounts Payable: The increase in accounts payable from $28,710 to $41,990 means that more cash has been paid to suppliers than the expenses recognized. Therefore, we add the increase in accounts payable to the adjusted net income.

Adjusted Net Income + Increase in Accounts Payable
= $288,930 + ($41,990 - $28,710)
= $288,930 + $13,280
= $302,210

c) Income Taxes Payable: The increase in income taxes payable from $6,760 to $10,850 means that less cash has been paid for income taxes than the taxes recognized. Therefore, we subtract the increase in income taxes payable from the adjusted net income.

Adjusted Net Income - Increase in Income Taxes Payable
= $302,210 - ($10,850 - $6,760)
= $302,210 - $4,090
= $298,120

4. Finalize the Operating Activities Section: The final step is to include any other adjustments needed to reconcile the net income to the net cash flow from operating activities. In this case, there are no additional adjustments provided, so the adjusted net income of $298,120 is also the net cash flow from operating activities.

Therefore, the operating activities section of the statement of cash flows using the indirect method would show:

Operating Activities:
Net income $298,120

Note: The values may differ if there are other adjustments not mentioned in the given information.