1) The income statement of Booker T Industries Inc. for the current year ended June 30 is as follows:
2 Cost of goods sold 288,200.00
3 Gross profit $227,300.00
4 Operating expenses:
5 Depreciation expense $38,480.00
6 Other operating expenses 105,170.00
7 Total operating expenses 143,650.00
8 Income before income tax $83,650.00
9 Income tax expense 21,410.00
10 Net income $62,240.00
Changes in the balances of selected accounts from the beginning to the end of the current year are as follows:
Accounts receivable (net) ($12,370)
Prepaid expenses (3,600)
Accounts payable (merchandise creditors) (8,750)
Accrued expenses payable (operating expenses) 1,120
Income tax payable (2,650)
a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the direct method. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. In the operating activities section, use the minus sign to indicate cash outflows, decreases in cash and a net cash outflow, if required.
b. What does the direct method show about a company's cash flows from operating activities that is not shown using the indirect method?
What does the direct method show about a company's cash flows from operating activities that is not shown using the indirect method?
With the __________ , the cash received less the cash payments is the net cash flow from operating activities. Individual cash receipts and payments are reported in the Cash Flows from Operating Activities section.
The _________ adjusts accrual-basis net income for revenues and expenses that do not involve the receipt or payment of cash to arrive at cash flows from operating activities.
2) Statement of Cash Flows—Direct Method
The comparative balance sheet of Canace Products Inc. for December 31, 20Y6 and 20Y5, is as follows:
Dec. 31, 20Y6 Dec. 31, 20Y5
Cash $258,340 $243,370
Accounts receivable (net) 93,590 87,410
Inventories 264,190 258,780
Investments 0 100,260
Land 135,510 0
Equipment 291,490 228,800
Accumulated depreciation (68,240) (61,700)
Total assets $974,880 $856,920
Liabilities and Stockholders' Equity
Accounts payable (merchandise creditors)$176,450 $168,810
Accrued expenses payable (operating expenses)17,550 22,280
Dividends payable 9,750 7,710
Common stock, $10 par 52,640 41,990
Paid-in capital: Excess of issue price over par-common stock 197,900 116,540
Retained earnings 520,590 499,590
Total liabilities and stockholders' equity $974,880 $856,920
The income statement for the year ended December 31, 20Y6, is as follows:
Cost of goods sold 555,300
Gross profit $793,330
Depreciation expense $6,540
Other operating expenses 700,460
Total operating expenses 707,000
Operating income $86,330
Loss on sale of investments (27,070)
Income before income tax $59,260
Income tax expense 18,960
Net income 40,300
Additional data obtained from an examination of the accounts in the ledger for 20Y6 are as follows:
- Equipment and land were acquired for cash.
- There were no disposals of equipment during the year.
- The investments were sold for $73,190 cash.
- The common stock was issued for cash.
- There was a $19,300 debit to Retained Earnings for cash dividends declared.
Prepare statement of cash flows, using the direct method of presenting cash flows from operating activities. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.