The following income statement and additional year-end information is provided. SONAD COMPANY
Income Statement
For Year Ended December 31
Sales $1,647,000
Cost of goods sold 807,030
Gross profit 839,970
Operating expenses
Salaries expense $225,639
Depreciation expense 39,528
Rent expense 44,469
Amortization expenses—Patents 4,941
Utilities expense 18,117 332,694
507,276
Gain on sale of equipment 6,588
Net income $513,864
Accounts receivable $29,000 increase Accounts payable $14,925 decrease
Inventory 23,425 increase Salaries payable 5,000 decrease
Prepare the operating activities section of the statement of cash flows using the indirect method.

Cash flow from Operating Activities

Net income                                                         $513,864

Adjustment for Non-cash items :

Depreciation expense                                        $39,528

Amortization expenses—Patents                          $4,941

Adjustment for Changes in Working Capital :

Increase in Accounts receivable                      ($29,000)

Decrease in Accounts payable                          ($14,925)

Increase in Inventory                                          ($23,425)

Decrease in Salaries payable                             ($5,000)

Net Cash flow from Operating Activities          $485,983

Explanation:

The Indirect method, reconciles the Operating Profit to the Operating Cash Flow by adjusting for the following items :

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