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 13.21EX
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
To Explain: The Company’s cash flows from operating activities under direct method.
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.
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Chapter 13 Solutions
Corporate Financial Accounting
- Partial Statement of Cash Flows Service Company had net income during the current year of $65,800. The following information was obtained from Services balance sheet: Accounts receivable $26,540 increase Inventory 32,180 increase Accounts payable 9,300 decrease Interest payable 2,120 increase Accumulated depreciation (Building) 14,590 increase Accumulated depreciation (Equipment) 32,350 increase Additional Information: 1. Equipment with accumulated depreciation of $18,000 was sold during the year. 2. Cash dividends of $29,625 were paid during the year. Required: 1. Prepare the net cash flows from operating activities using the indirect method. 2. CONCEPTUAL CONNECTION How would the cash proceeds from the sale of equipment he reported on the statement of cash flows? 3. CONCEPTUAL CONNECTION How would the cash dividends be reported on the statement of cash flows? 4. CONCEPTUAL CONNECTION What could the difference between net income and cash flow from operating activities signal to financial statement users?arrow_forwardStatement of Cash Flows The following are Mueller Companys cash flow activities: a. Net income, 68,000 b. Increase in accounts receivable, 4,400 c. Receipt from sale of common stock, 12,300 d. Depreciation expense, 11,300 e. Dividends paid, 24,500 f. Payment for purchase of building, 65,000 g. Bond discount amortization, 2,700 h. Receipt from sale of long-term investments at cost, 10,600 i. Payment for purchase of equipment, 8,000 j. Receipt from sale of preferred stock, 20,000 k. Increase in income taxes payable, 3,500 l. Payment for purchase of land, 9,700 m. Decrease in accounts payable, 2,900 n. Increase in inventories, 10,300 o. Beginning cash balance, 18,000 Required: Prepare Mueller Company's statement of cash flows.arrow_forwardIn the current year, Harrisburg Corporation had net income of 35,000, a 9,000 decrease in accounts receivable, a 7,000 increase in inventory, an 8,000 increase in salaries payable, a 13,000 decrease in accounts payable, and 10,000 in depreciation expense. Using the indirect method, prepare the operating activities section of its statement of cash flows based on this information.arrow_forward
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