Question

The income statement of Sunland Company is shown below. $6,840,000 SUNLAND COMPANY INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2017 Sales revenue Cost of goods sold Beginning inventory $1,920,000 Purchases 4,390,000 Goods available for sale 6,310,000 Ending inventory 1,580,000 Cost of goods sold Gross profit Operating expenses Selling expenses 460,000 Administrative expenses 710,000 Net income 4,730,000 2,110,000 1,170,000 $940,000 Additional information: 1. Accounts receivable decreased $350,000 during the year. 2. Prepaid expenses increased $160,000 during the year. 3. Accounts payable to suppliers of merchandise decreased $280,000 during the year. 4. Accrued expenses payable decreased $100,000 during the year. 5. Administrative expenses include depreciation expense of $50,000. Prepare the operating activities section of the statement of cash flows using the direct method. SUNLAND COMPANY Statement of Cash Flows (Partial)

Answer 1

Solution

Sunland company
Statement of Cash Flows
For the Year Ended December 31-2017
Cash flows from operating activities:
Cash received from customers		$ 7,190,000
Cash payments for merchandise	-$ 4,670,000
Cash paid for operating expenses	-$ 1,380,000
		-$ 6,050,000
Net cash flow from operating activities		$ 1,140,000

.Working

Cash received from customers
Sales revenue	$ 6,840,000
Add : Decrease in accounts receivable	$ 350,000
Cash received from customers	$ 7,190,000

.

Cash payments for merchandise
Net purchases	$ 4,390,000
Add: Decrese in Accounts payable	$ 280,000
Cash payments for merchandise	$ 4,670,000

.

Cash payments for Operating expenses
Operating expenses excluding depreciation	$ 1,120,000
Add: Decrease in accrued expense	$ 100,000
Add: Increase in prepaid expense	$ 160,000
Cash payments for Operating expenses	$ 1,380,000