Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $445,500
Cost of merchandise sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154,000
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $291,500
Operating expenses:
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38,500
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,280
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153,780
Income before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $137,720
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,600
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,120
End
of Year
Beginning
of Year
Accounts receivable (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $36,300 $31,240
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,400 80,300
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,520 15,840
Accounts payable (merchandise creditors) . . . . . . . . . . . . . . . . . . . . . 67,540 62,700
Accrued expenses payable (operating expenses) . . . . . . . . . . . . . . . 19,140 20,900
Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,400 4,400
Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the direct method.
Answer:
Cash flows from operating activities:
Cash received from customers……………………… $440,4401
Deduct: Cash payments for merchandise………… $161,2602
Cash payments for operating
expenses…………………………………… 115,7203
Cash payments for income taxes……… 39,600 316,580
Net cash flow from operating activities…………… $123,860
Computations:
1. Sales……………………………………………………………………………………… $445,500
Deduct increase in accounts receivable…………………………………………… 5,060
Cash received from customers……………………………………………………… $440,440
2. Cost of merchandise sold…………………………………………………………… $154,000
Add increase in inventories…………………………………………………………… 12,100
$166,100
Deduct increase in accounts payable……………………………………………… 4,840
Cash payments for merchandise…………………………………………………… $161,260
3. Operating expenses other than depreciation……………………………………… $115,280
Add decrease in accrued expenses payable……………………………………… 1,760
$117,040
Deduct decrease in prepaid expenses……………………………………………… 1,320
Cash payments for operating expenses…………………………………………… $115,720