a.
Statement of
Direct method: The direct method uses the cash basis of accounting for the preparation of the statement of cash flows. It takes into account those revenues and expenses for which cash is either received or paid.
Cash flows from operating activities: Cash flows from operating activity represent the net cash flows from the general operation of the business by comparing the cash receipt and cash payments.
Cash Receipts: It encompasses all the cash receipts from sale of goods and on account receivable.
Cash Payments: It encompasses all the cash payments that are made to suppliers of goods and all expenses that are paid.
The below table shows the way of calculation of cash flows from operating activities:
Cash flows from operating activities (Direct method) |
Add: Cash receipts. |
Cash receipt from customer |
Less: Cash payments: |
To supplier |
For operating expenses |
Income tax expenses |
Net cash provided from or used by operating activities |
Table (1)
To Prepare: The cash flows from operating activities section of the statement of cash flows using direct method.
a.
Answer to Problem 16.22EX
T Industries | ||
Statement of Cash Flows - Direct Method (Partial) | ||
Year Ended June 30 | ||
Details | Amount ($) | Amount ($) |
Cash flows from operating activities: | ||
Add: Cash receipt: | ||
Cash received from customers | 522,760 | |
Total cash receipt | 522,760 | |
Less: Cash payments: | ||
Cash payment for merchandise | (302,400) | |
Cash payment for operating expenses | (99,960) | |
Cash payment for income taxes | (24,360) | |
Total cash payments | (426,720) | |
Net cash provided by operating activities | $96,040 |
Explanation of Solution
Working notes:
Calculate the amount of cash received from customers:
Calculate the amount of cash paid for merchandise:
Calculate the amount of cash paid for operating expenses:
Calculate the amount of cash payments for income taxes.
Therefore, the net cash provided by operating activities under direct method is $96,040.
b.
To Explain: The Company’s cash flows from operating activities under direct method.
b.
Explanation of Solution
In the direct method shows all the
In the indirect method, adjusts the accrual basis net income for revenues and expenses. Thus, it does not involve the cash receipt or cash payment to arrive at cash flows from
Operating activities.
Want to see more full solutions like this?
Chapter 16 Solutions
Accounting
- Litten Corporation's most recent income statement appears below: Sales (all on account)..........................$791,000 Cost of goods sold...............................412,000 Gross margin.....................................379,000 Selling and administrative expense...............214,000 Net operating income.............................165,000 Interest expense..................................34,000 Net income before taxes..........................131,000 Income taxes......................................40,000 Net income........................................91,000 The gross margin percentage is closest to: A) 92.0% B) 416.5% C) 24.0% D) 47.9%arrow_forwardPrepare a statement of cash flows for the year 2012, following the proper format using following data: OLYMPIC, INC. INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2011 Revenue and gains: Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $900,000 Dividend revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 Interest revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6,000 Gain on sales of plant assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31,000 Total revenue and gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..$940,000 Costs, expenses, and losses: Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $500,000 Operating expenses (including depreciation of $40,000) . . . . . . . . . 300,000 Interest expense. . . . . . . . . . . . . . .…arrow_forwardCompute cash flows from financing activities using the following company information. Cash received from short-term loan. . . . . . . . . . . $20,000 Cash dividends paid. . . . . . . . . . . . . . . . . . . $16,000 Purchase of short-term stock investments. . . . . . 5,000 Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . 8,000arrow_forward
- Mixon Company’s year-end balance sheets show the following: EXERCISE 1–3 Evaluating Short-Term Liquidity 2006 Cash ............................ $ 30,800 Accountsreceivable,net ............. 88,500 Merchandiseinventory ............... 111,500 Prepaidexpenses ................... 9,700 Plantassets,net ................... 277,500 Totalassets ....................... $518,000 Accountspayable ................... $128,900 Long-term notes payable secured by mortgages on plant assets . . . . . . . 97,500 Commonstock,$10parvalue ......... 162,500 Retainedearnings .................. 129,100 Totalliabilitiesandequity ............ $518,000 2005 $ 35,625 62,500 82,500 9,375 255,000 $445,000 2004 $ 36,800 49,200 53,000 4,000 229,500 $372,500 $ 49,250 82,500 162,500 78,250 $372,500 $445,000 $ 75,250 102,500 162,500 104,750 49 Required: Compare the year-end short-term liquidity position of this company at the end of 2006, 2005, and 2004 by computing the: (a) current ratio…arrow_forwardCERVEZA CORPORATION Comparative Income Statement This Year Last Year Sales (all on account) ............................................ $452,000 $388,000 Less cost of goods sold ......................................... 260,000 221,000 Gross margin ......................................................... 192,000 167,000 Less operating expenses ........................................ 104,000 89,000 Net operating income ............................................ 88,000 78,000 Less interest expense ............................................. 8,000 8,000 Net income before taxes ........................................ 80,000 70,000 Less income taxes (30%) ...................................... 24,000 21,000 Net income ............................................................ $ 56,000 $ 49,000 CERVEZA CORPORATION Comparative Balance Sheet…arrow_forwardCERVEZA CORPORATION Comparative Income Statement This Year Last Year Sales (all on account) ............................................ $452,000 $388,000 Less cost of goods sold ......................................... 260,000 221,000 Gross margin ......................................................... 192,000 167,000 Less operating expenses ........................................ 104,000 89,000 Net operating income ............................................ 88,000 78,000 Less interest expense ............................................. 8,000 8,000 Net income before taxes ........................................ 80,000 70,000 Less income taxes (30%) ...................................... 24,000 21,000 Net income ............................................................ $ 56,000 $ 49,000 CERVEZA CORPORATION Comparative Balance Sheet…arrow_forward
- CERVEZA CORPORATION Comparative Income Statement This Year Last Year Sales (all on account) ............................................ $452,000 $388,000 Less cost of goods sold ......................................... 260,000 221,000 Gross margin ......................................................... 192,000 167,000 Less operating expenses ........................................ 104,000 89,000 Net operating income ............................................ 88,000 78,000 Less interest expense ............................................. 8,000 8,000 Net income before taxes ........................................ 80,000 70,000 Less income taxes (30%) ...................................... 24,000 21,000 Net income ............................................................ $ 56,000 $ 49,000 CERVEZA CORPORATION Comparative Balance Sheet…arrow_forwardCERVEZA CORPORATION Comparative Income Statement This Year Last Year Sales (all on account) ............................................ $452,000 $388,000 Less cost of goods sold ......................................... 260,000 221,000 Gross margin ......................................................... 192,000 167,000 Less operating expenses ........................................ 104,000 89,000 Net operating income ............................................ 88,000 78,000 Less interest expense ............................................. 8,000 8,000 Net income before taxes ........................................ 80,000 70,000 Less income taxes (30%) ...................................... 24,000 21,000 Net income ............................................................ $ 56,000 $ 49,000 CERVEZA CORPORATION Comparative Balance Sheet…arrow_forwardCERVEZA CORPORATION Comparative Income Statement This Year Last Year Sales (all on account) ............................................ $452,000 $388,000 Less cost of goods sold ......................................... 260,000 221,000 Gross margin ......................................................... 192,000 167,000 Less operating expenses ........................................ 104,000 89,000 Net operating income ............................................ 88,000 78,000 Less interest expense ............................................. 8,000 8,000 Net income before taxes ........................................ 80,000 70,000 Less income taxes (30%) ...................................... 24,000 21,000 Net income ............................................................ $ 56,000 $ 49,000 CERVEZA CORPORATION Comparative Balance Sheet…arrow_forward
- Boscia Corporation's balance sheet appears below: Comparative Balance Sheet Ending Balance Beginning Balance Assets: Cash and cash equivalents......................... $ 44 $ 38 Accounts receivable .................................. 82 69 Inventory ................................................... 71 69 Plant and equipment .................................. 537 500 Accumulated depreciation......................... ( 240) ( 201) Total assets................................................ $494 $475 Liabilities and stockholders’ equity: Accounts payable ...................................... $ 70 $ 60 Wages payable........................................... 24 21 Taxes payable ............................................ 19 22 Bonds payable ........................................... 226 300 Deferred taxes............................................ 19 18 Common stock........................................... 22 20 Retained earnings...................................... 114 34 Total…arrow_forwardAccounting Suppose that a company's cash flow statement showed the following: o Net Income: $19,917.48 o Depreciation: $3,109.46 o Accounts receivable: $-996.63 o Inventory: $489.61 o Accounts payable: $984.18 What is this company's net cash from operating activities? $22,519.92 $23,014.49 $23,516.55 $20,394.64 $23,504.10arrow_forwardCash Flows from Operating Activities—Direct Method The income statement for Rhino Company for the current year ended June 30 and balances of selected accounts at the beginning and the end of the year are as follows: 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. Use the…arrow_forward
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning