| Course | AC302 Intermediate Accounting III |
|---|---|
| Unit | Unit 3 |
| Paper type | Operating section preparation |
| Length | About 590 words, 5 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | BS in Accounting |
| Updated | October 2026 |
Free sample paper for AC302 Unit 3
Fifteen Adjustments From $1,260,000: A Unit 3 Operating Section Preparation for an Electrical Supply Distributor
[Student Name]
Purdue University Global
AC302: Intermediate Accounting III
Unit 3 Operating Section Preparation
[Instructor Name]
[Date]
Wagstone Electrical Supply, Inc. and every amount are composite; the standards and textbook cited are real.
Cash Flows From Operating Activities, Year Ended December 31
Net income: $1,260,000.
Adjustments for items that did not use or provide cash:
1. Depreciation: add $385,000.
2. Amortization of a purchased supplier-distribution patent: add $42,000.
3. Loss on sale of warehouse racking: add $18,000.
4. Unrealized gain on trading securities: subtract $27,000.
5. Equity-method income from a 30 percent interest in a lighting importer, $96,000, less $30,000 of dividends received: subtract $66,000.
6. Amortization of premium on bonds payable: subtract $11,000.
7. Deferred income taxes: add $48,000.
8. Share-based compensation: add $75,000.
Subtotal of noncash adjustments: $464,000.
Changes in operating assets and liabilities:
9. Increase in accounts receivable: subtract $142,000.
10. Increase in inventory: subtract $96,000.
11. Decrease in prepaid expenses: add $8,000.
12. Increase in accounts payable: add $71,000.
13. Increase in accrued wages: add $14,000.
14. Decrease in income taxes payable: subtract $9,000.
15. Increase in unearned revenue on contractor deposits: add $26,000.
Subtotal of working capital changes: negative $128,000.
Net cash provided by operating activities: $1,596,000.
Key to the Signs
Lines 1 and 2 remove expenses that reduced income without any cash leaving. Line 3 adds back a loss because the full sale proceeds belong in investing; leaving the loss in operating would count the same transaction twice. Line 4 subtracts a gain that raised income though no securities were sold.
Line 5 is the one most often missed. Under the equity method, Wagstone records its 30 percent share of the importer's income, $96,000, but only the $30,000 of dividends actually arrived (Accounting Principles Board, 1971). Only the difference is subtracted.
The bond premium line is subtracted even though premium amortization reduces an expense, because Wagstone paid more interest in cash than the interest expense on its income statement; the reconciliation has to remove that $11,000 understatement of cash paid.
Line 7 adds deferred taxes because part of the tax expense will be paid in later years. Line 8 adds back share-based compensation: the expense was measured at the fair value of options granted, but no cash was paid (Financial Accounting Standards Board, 2004).
Lines 9 through 15 convert accrual revenue and expenses to cash. A rise in receivables means sales were recorded faster than cash came in, so it is subtracted; a rise in payables means purchases were recorded but not yet paid, so it is added. The contractor deposits in line 15 are cash received before Wagstone ships, so their increase is added.
Disclosures That Accompany the Section
Under the indirect method, US GAAP requires interest paid, net of amounts capitalized, and income taxes paid to be disclosed separately (Financial Accounting Standards Board, 1987). Wagstone paid interest of $91,000 and income taxes of $369,000; both appear in a note beneath the statement.
What the Reconciliation Shows
Operating cash exceeded net income by $336,000, or about 27 percent. Most of the excess came from noncash charges, depreciation above all. Working capital absorbed $128,000, mainly in receivables and inventory, which is expected for a distributor whose contractor customers grew busier during the year. If receivables keep rising faster than sales next year, the gap between income and cash will narrow, and that would be worth a closer look (Kieso et al., 2019).
References
Accounting Principles Board. (1971). The equity method of accounting for investments in common stock (APB Opinion No. 18). American Institute of Certified Public Accountants.
Financial Accounting Standards Board. (1987). Statement of cash flows (Statement of Financial Accounting Standards No. 95). https://www.fasb.org
Financial Accounting Standards Board. (2004). Share-based payment (Statement of Financial Accounting Standards No. 123, revised 2004). https://www.fasb.org
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting (17th ed.). Wiley.
The Purdue Global AC302 Unit 3 instructions
AC302's third unit supplies an income statement, balance sheet changes and notes, and asks for the operating section by the indirect method. Begin with net income. List the noncash items first: depreciation and amortization, gains and losses on disposals, unrealized gains and losses, equity-method income less dividends received, amortization of bond premium or discount, deferred taxes and share-based compensation. Then list changes in each operating asset and liability, subtracting increases in assets and adding increases in liabilities. Subtotal both blocks. Explain any sign that might look backward, such as premium amortization. Disclose interest and income taxes paid. A short reading of the result, comparing operating cash with net income, finishes the work. Format the section as it would appear on the statement. Cite SFAS 95, APB 18 and the share-based payment standard in APA 7.
How this AC302 Unit 3 example is built
The sample presents the section in statement form: net income, eight numbered noncash adjustments with a $464,000 subtotal, seven numbered working capital changes with a negative $128,000 subtotal, and $1,596,000 of operating cash. A key to the signs follows. It explains why the loss on racking is added back, why only $66,000 of equity-method income is subtracted when $30,000 of dividends arrived, and why deferred taxes and share-based pay are added. The highlighted sentence explains why premium amortization is subtracted. A paragraph converts the working capital lines into plain cash terms, including contractor deposits. A disclosure section reports $91,000 of interest and $369,000 of taxes paid. The final section notes that operating cash ran 27 percent above income and names receivables as the line to watch.
Where the points sit in the AC302 Unit 3 rubric
Accuracy and signs carry the AC302 grade for this section, line by line. Graders look hard at the equity-method line, the premium amortization and the gain or loss on disposal, because those are where signs go wrong. Each working capital change must have the correct direction. Subtotals and the final figure must agree with the cash change implied by the problem. Explanations that give the reason for each sign earn credit even when an amount is miscopied. The required disclosures of interest and taxes paid are a separate scoring point. Statement formatting, with a heading and clear labels, shows the student can present as well as compute. A sentence interpreting the result adds analysis. In Purdue Global's AC302, references to SFAS 95, APB 18 and the share-based payment standard round out the work in APA 7 form.
AC302 Unit 3 help: mistakes that cost points
The usual mistakes in indirect operating sections are subtracting depreciation, adding gains and leaving equity-method income untouched. Students subtract the full equity-method income instead of the amount net of dividends. Premium amortization is added because it reduced an expense. Deferred taxes are subtracted. Share-based compensation is left out because it seems like a payroll cost. Increases in liabilities are subtracted. The interest and taxes paid disclosure is forgotten. Some students list working capital lines before noncash items, which is acceptable but harder to grade. A section with no explanation of signs loses partial credit when a figure slips. If your problem adds a bond discount, an impairment or a change in an allowance, a writer can prepare the section with a key for each line.
Get an AC302 Unit 3 example written to your instructions
This section runs on the two balance sheet dates, the year's results and every note on disposals, investees and bonds from your Unit 3 problem; send them with the rubric. The operating section and its key come back within 24-48h, reconciled to the figure the problem expects, and a first custom sample is free. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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AC302 Unit 3 questions, answered
Why is the equity-method line net of dividends?
Because the investor recorded its full share of the investee's income, 96,000, but received only 30,000 in cash. The dividends reduced the investment account rather than producing income, so the cash that actually arrived from the investee is the 30,000. Subtracting the 66,000 difference leaves exactly that cash inside operating activities, which is where US GAAP places returns on an investment.
Should share-based compensation be added back?
Yes, when the award is settled in shares. The expense reduced net income, but employees were paid with equity rather than cash, so no operating outflow occurred. Awards settled in cash differ, since they create a liability paid later, and the change in that liability appears among the working capital lines instead. The AC302 sample labels which kind the problem describes.
What if the problem gives only net income and balance sheets?
Then each adjustment has to be inferred from account changes and whatever notes the problem supplies. The change in accumulated depreciation, adjusted for any disposal, gives depreciation; the investment account's change, compared with dividends reported, reveals the equity-method share. The sample shows those derivations in a short working paper before the section, which is where graders look when a figure is not given outright.
Where can I find a free AC302 Unit 3 sample paper?
This page gives a complete AC302 Unit 3 operating section for a composite electrical supply distributor, reconciling $1,260,000 of net income to $1,596,000 of operating cash in fifteen lines, with a key and APA 7 references.
Why is premium amortization subtracted in the AC302 Unit 3 sample?
Wagstone paid more interest in cash than the expense on its income statement, because the premium reduces expense. Subtracting the $11,000 brings operating cash down to what was actually paid.