Question

6.

The following schedule relates the income statement with cash flows from operating activities, derived by both the direct and indirect methods. Some elements necessary to complete the schedule are missing. Required: Complete the schedule by determining each of the following missing elements: (Amounts to be deducted should be indicated with a minus sign.) Income Statement $ Sales Gain on sale of equipment Cash flows from Operating Activities Indirect Method Direct Method Net income Adjustments: 355 Decrease in accounts receivable 11 Cash received from customers 29 Gain on sale of equipment (29) (Not reported—no cash effect) Increase in inventory (17) Increase in accounts payable 23 Cash paid to suppliers (52) 11 Cash paid to employees (14) Depreciation expense 14 Cash paid for depreciation Decrease in bond discount 8 Cash paid for interest (31) Decrease in prepaid insurance 14 Cash paid for insurance (11) Loss on sale of land 11 (Not reported—no cash effect) (37) Increase in income tax payable Cash paid for income taxes 239 Net cash flows from operating activities $ 89 Net cash flows from operating activities (179) (41) Cost of goods sold Salaries expense Depreciation expense Interest expense Insurance expense Loss on sale of land Income tax expense Net Income (14) (26) 89 $ $

Answer 1

Solution Income Statement $366 Sales Gain on sale of equipment | Cost of goods sold (WN-4) Salaries expense Depreciation expense Interest expense (WN-5) Insurance expense Loss on sale of land Income tax expense Net Income Cash flows from Operating Activities Indirect Method Direct Method Net Income $32 Adjustments: $355 Decerease in Accounts receivable $11 Cash received from customers (WN-1) $29 Gain on sale of equipment ($29) (Not reported-no cash effect) Increase in inventory ($17) ($185) Increase in accounts payable $23 Cash paid to suppliers ($52) Increase in Salaries payable $11 Cash paid to employees ($14) Depreciation expense $14 Cash paid for depreciation ($22) Decrease in bond discount $8 Cash paid for interest ($31) Decrease in prepaid insurance $14 Cash paid for insurance (WN-2) ($11) Loss on sale of land $11 (Not reported-no cash effect) ($37) Increase in income tax payable (WN-3) 1 $11 Cash paid for income taxes $32 Net cash flow from operating activities $89 Net cash flow from operating activities ($179) ($41) $0 ($14) ($17) ($26) $89 WN-1: Cash received from customers Sales Decerease in Accounts receivable Cash received from customers $355 $11 $366 WN-2 : Cash paid for insurance Insurance expense Decrease in prepaid insurance Cash paid for insurance $31 ($14) $17 WN-3: Increase in income tax payable Income tax expense Cash paid for income taxes Increase in income tax payable $37 ($26) $11 WN-4: Cost of goods sold Cash paid to suppliers Increase in accounts payable Merchandise Purchases Less: Increase in inventory Cost of goods sold $179 $23 $202 ($17) $185 WN-5 : Interest expense Cash paid for interest Decrease in bond discount Interest expense $14 $8 $22