Question

5.

The income statement and a schedule reconciling cash flows from operating activities to net income are provided below for Macrosoft Corporation.

MACROSOFT CORPORATION Income Statement For the Year Ended December 31, 2018 ($ in millions)
Revenues and gains:
Sales	$	320.00
Gain on sale of cash equivalents		2.50
Gain on sale of investments		24.50		$	347.00
Expenses and loss:
Cost of goods sold	$	125.00
Salaries		40.50
Interest expense		12.50
Insurance		20.50
Depreciation		10.50
Patent amortization		4.50
Loss on sale of land		6.50			220.00
Income before tax					127.00
Income tax expense					63.50
Net income				$	63.50

   

Reconciliation of Net Income to Net Cash Flows from Operating Activities ($ in millions)
Net income	$	63.50
Adjustments for noncash effects:
Depreciation expense		10.50
Patent amortization expense		4.50
Loss on sale of land		6.50
Gain on sale of investment		(24.50	)
Decrease in accounts receivable		6.50
Increase in inventory		(12.50	)
Increase in accounts payable		18.50
Decrease in bond discount		1.50
Increase in salaries payable		6.50
Decrease in prepaid insurance		4.50
Increase in income tax payable		10.50
Net cash flows from operating activities	$	96.00

Required:

Prepare the cash flows from operating activities section of the statement of cash flows (direct method). (Enter your answers in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50). Amounts to be deducted should be indicated with a minus sign.)

Answer 1

MACROSOFT CORPORATION Cash flow from Operating activities ( Direct method) Cash Flow from Operting activities Cash Receipts : Cash Receipts from Customers Cash increase from sale of of Cash equivalents $ $ 326.50 2.50 $ 329.00 Less : Cash Payments : Cash paid for material Purchases Payment of Salalries Payment of Interest expense Payment of insurance Payment of Income Tax Net Cash Flow from Operting activities $ $ $ $ $ (119.00) (34.00) (11.00) (16.00) (53.00) $ $ (233.00) 96.00

Working Notes Cash Receipts from Customers Sales Add : Decrease in accounts receivables Cash Receipts from Customers $ $ $ 320.00 6.50 326.50 Cash paid for material Purchases Cost of Goods Sold Add : Increase in inventory Purchases Less : Increase in Accounts payable Cash paid for material Purchases $ $ $ $ $ 125.00 12.50 137.50 (18.50) 119.00 Cash paid towards the Salaries $ Salaries as per income statement Less : Increase in salaries payable cash paid towards the salaries 40.50 (6.50) 34.00

Cash paid towards insurance Insurance expense as per income statement Less: Decrease in prepaid insurance cash paid towards insurance $ $ $ 20.50 (4.50) 16.00 Cash paid towards the income tax Income tax as per income statement Less : Increase in salaries payable Cash paid towards Income Tax $ $ $ 63.50 (10.50) 53.00 Interest paid in cash Interest expenses as per income statement Less: Decrease in Bonds Discount Interest paid in cash $ $ $ 12.50 (1.50) 11.00