Question

Exercise 4-21 (Algo) Statement of cash flows; direct method [LO4-8]

Presented below is the 2021 income statement and comparative balance sheet information for Tiger Enterprises.

TIGER ENTERPRISES
Income Statement
For the Year Ended December 31, 2021
($ in thousands)
Sales revenue								$	7,660
Operating expenses:
Cost of goods sold		$	3,470
Depreciation expense			350
Insurance expense			210
General and administrative expense			1,910
Total operating expenses									5,940
Income before income taxes									1,720
Income tax expense									(710	)
Net income								$	1,010
Balance Sheet Information ($ in thousands)	Dec. 31,2021						Dec. 31, 2020
Assets:
Cash		$	410					$	310
Accounts receivable			860						940
Inventory			750						710
Prepaid insurance			105						75
Equipment			2,650						2,350
Less: Accumulated depreciation			(1,060	)					(710	)
Total assets		$	3,715					$	3,675
Liabilities and Shareholders' Equity:
Accounts payable		$	410					$	470
Accrued liabilities (for general & administrative expense)			410						510
Income taxes payable			310						260
Notes payable (due 12/31/2022)			910						710
Common stock			1,010						910
Retained earnings			665						815
Total liabilities and shareholders' equity		$	3,715					$	3,675

Required:
Prepare the cash flows from operating activities section of Tiger's 2021 statement of cash flows using the direct method. Assume that all purchases and sales of inventory are on account, and that there are no anticipated bad debts for accounts receivable. (Amounts to be deducted should be indicated with a minus sign. Enter your answers in thousands.)

Answer 1

A Cash flow statement provides the following information:
1) Information about company's cash receipt and cash payment during an accounting period.
2) Information about company's operating, investing and financing activities.
3) Information access the company's liquidity, solvency and financing flexibility.
> Cash flow from operating activities (CFO), consists of the inflows and outflows of cash resulting from revenue and expense transactions that affect a firm's net income.
> Cash flow from investing activities (CFI) consists of the inflow and outflows of cash resulting from the acquisition of long term assets and investment.
> Cash Flow from financing activities (CFF) consists of the inflow and outflows of cash resulting from transactions affecting a firm's capital structure.

Tiger Enterprises Statement of Cash Flows (Direct Method) For the year ended December 31, 2021 ($ in thousands) Amount Amount Working $7,740 ($3,570) ($240) ($2,010) ($660) Particulars Cash Flow from Operating Activities Cash Received From Customers Cash Paid for merchandise Cash Paid for insurance Cash payment for General and administrative expense Cash payment for Income Tax Cash flow from operating activities Working: 1 Cash Received From Customers Beginning Accounts Receivable Add: Sales Less: Ending Accounts Receivable Cash Received From Customers $1,260 $940 $7,660 ($860) $7,740

2 Cash Paid for Merchandise Ending inventory = Beginning inventory + Purchases - Cost of Good Sold Purchases = Ending inventory + Cost of Good sold - Beginning inventory Ending inventory $750 Add: Cost of Good Sold $3,470 Less: Beginning inventory ($710) Purchases $3,510 Beginning Accounts Payable $470 Add: Purchases $3,510 Less: Ending Accounts Payable ($410) Cash Paid for Merchandise $3,570 $105 $210 ($75) $240 3 Cash Paid for Insurance Expense Ending Prepaid Insurance Add: Insurance Expense Less: Beginning Insurance Expense Cash Paid for Insurance Expense 4 Cash Paid for General and administrative expense Beginning Accrued Liabilities Add: General and administrative expense Less: Ending Accrued Liabilities Cash Paid for General and administrative expense 5 Income Tax Paid Beginning Income Tax Payable Add: Income Tax Expense Less: Ending Income Tax Payable Income Tax Paid $510 $1,910 ($410) $2,010 $260 $710 ($310) $660