Question

Required information Problem 12-14A The direct versus the indirect method of determining cash flow from operating activities LO 12-1, 12-2 The following information applies to the questions displayed below] Green Brands, Inc. (GBI) presents its statement of cash flows using the indirect method. The following accounts and corresponding balances were drawn from GBl's Year 2 and Year 1 year-end balance sheets: Account Title Year 2 Year 1 Accounts receivable 23.000 29,00e 49,400 Merchandise inventory Prepaid insurance 56, 200 17,60e 27,80e Salaries payable 4,650 4,000 Unearned service revenue 1,0ee 2,750 The Year 2 income statement is shown next Income Statement $ 623,eee (378,eee) Sales Cost of goods sold Gross margin 245,eee ue (39, 000) Insurance expense Salaries expense Depreciation expense Operating income Gain on sale of equipment (153,eee) (4,50e) 54,300 3,10e Net income $57,400 Problem 12-14A Part a Required a. Prepare the operating activities section of the statement of cash flows using the direct method for Year 2. (Amounts to be deducted should be indicated with a minus sign.) GREEN BRANDS, INC. Statement of Cash Flows (Operating Activities) For the Year Ended December 31, Year 2 Cash flows from operating activities: Cash collections from customers for sales Cash collections from customers for services Cash payments for Net cash flow from operating activities 0 b. Prepare the operating activities section of the statement of cash flows using the indirect method for Year 2. (Amounts to be deducted should be indicated with a minus sign.) GREEN BRANDS, INC. Statement of Cash Flows (Operating Activities) For the Year Ended December 31, Year 2 Cash flows from operating activities: INet income Add: Deduct: Add: noncash expenses Net cash flow from operating activities

Answer 1

a.

Direct method
Sales	623000
Decrease in accounts receivable	6000
Cash collection from customer for sales		629000
Cash collection from customer for service	5800-2750+1000	4050
Cash payments
Cost of goods sold	378000
Increase in merchandise inventory	6800
Increase in accounts payable	-7100
Cash paid to suppliers		377700
Cash payment to employees	153000+4000-4650	152350
Cash paid for insurance	39000+17600-27800	28800
Total cash payment		558850
Net cash flow from operating activities		74200	(629000+4050-558850)

b.

Cash flow indirect method
Cash flow from operating activities
Net income		57400
Adjustments to reconcile the net income
Depreciation and Amortization expense	4500
Gain on sale of equipment	-3100
Changes in current asset and liabilities
Decrease in prepaid expense	10200
Decrease in accounts receivable	6000
decrease in inventory	-6800
Increase in Accounts payable	7100
Increase in salaries payable	650
Increase in unearned service revenue	-1750
		16800
Cash generated from operations		74200