Question

Portions of the financial statements for Peach Computer are provided below.

PEACH COMPUTER Income Statement For the year ended December 31, 2021
Net sales				$	1,875,000
Expenses:
Cost of goods sold	$	1,080,000
Operating expenses		590,000
Depreciation expense		53,000
Income tax expense		43,000
Total expenses					1,766,000
Net income				$	109,000

PEACH COMPUTER Selected Balance Sheet Data December 31
	2021			2020			Increase (I) or Decrease (D)
Cash	$	105,000		$	86,500		$	18,500		(I)
Accounts receivable		45,300			50,500			5,200		(D)
Inventory		78,000			56,500			21,500		(I)
Prepaid rent		3,300			5,600			2,300		(D)
Accounts payable		48,000			38,500			9,500		(I)
Income tax payable		5,300			11,500			6,200		(D)

Required:

Prepare the operating activities section of the statement of cash flows for Peach Computer using the direct method. (List cash outflows and any decrease in cash as negative amounts.)

Answer 1

Solution

PEACH COMPUTER
Cash Flow Statement (partial)
For year ended 31st December 2021
A. Cash Flows from Operating Activity
Net Income		$    109,000.00
Adjustments to reconcile net income to net cash from operations
Depreciation expense	$    53,000.00
Changes in working Capital
Decrease in Accounts receivables	$      5,200.00
Increase in Inventory	$ (21,500.00)
Decrease in prepaid rent	$      2,300.00
Decrease in Income tax payable	$    (6,200.00)
Increase in accounts payable	$      9,500.00
		$      42,300.00
Net cash flow from Operating activities		$    151,300.00