Question

Walton Brands, Inc., presents its statement of cash flows using the Indirect method. The following accounts and corresponding balances were drawn from Walton's Year 2 and Year 1 year-end balance sheets: Account Title Accounts receivable Merchandise inventory Prepaid insurance Accounts payable Salaries payable Unearned service revenue Year 2 $20,400 59,300 18,000 26,000 4,900 880 Year 1 $29,200 51,000 27,800 18,600 3,950 2,750 The Year 2 income statement is shown below: Income Statement Sales Cost of goods sold Gross margin Service revenue Insurance expense Salaries expense Depreciation expense Operating income Gain on sale of equipment Net income $ 619,000 (364,800) 255,000 4,500 (38,000) (154,000) (4,300) 63,200 3,500 $ 66,780 Required a. Prepare the operating activities section of the statement of cash flows using the direct method. b. Prepare the operating activities section of the statement of cash flows using the Indirect method.

Answer 1

fox X АA A B C D Е 1 direct method 2 А cash flow from operating activities cash collections from customers for sales cash collections from customers for services 3 $627,800 $2,550 5 cash payments for inventory 6 -$364,900 -$28,200 -$153,050 $84,200 7 insurance salaries net cash flow from operating activities 10 11 indirect method 12 cash flow from operating activities 13 net income add: $66,700 14 15 decrease in accounts receivable decrease in prepaid insurance increase in accounts payable $8,800 $9,800 $7,400 16 17 18 $9 19 deduct: increase in merchandise inventory decrease in unearned service revenue add: non cash expenses depreciation expense gain on sale of equipment net cash flow from operating activities 20 -$ 8,300 21 -$1,950 22 23 $4,300 24 -$ 3,500 25 $84,200 26 27 .. 82 st LO LON

for formulas and calculations, refer to the image below -

fox В2 A A C D E 1 2 direct method A. cash flow from operating activities cash collections from customers for sales cash collections from customers for services cash payments for: inventory 4 619000+29200-20400 4500+800-2750 5 6 -(364000+59300-51000+18600-26000) (38000+18000-27800) -(154000+3950-4900) SUM(D4:D9) 7 insurance salaries net cash flow from operating activities 10 11 indirect method 12 В cash flow from operating activities 13 66700 14 net income add: 15 decrease in accounts receivable - 29200-20400 16 decrease in prepaid insurance increase in accounts payable -27800-18000 17 - 26000-18600 18 19 4900-3950 deduct 20 increase in merchandise inventory -51000-59300 21 decrease in unearned service revenue -800-2750 22 add: non cash expenses depreciation expense gain on sale of equipment net cash flow from operating activities 23 4300 24 -3500 25 SUM(D14:D25) 26 27

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