Question

Portions of the financial statements for Parnell Company are provided below. PARNELL COMPANY Income Statement For the Year Ended December 31, 2018 ($ in 000s) Revenues and gains: Sales $ 820 Gain on sale of buildings 10 $ 830 Expenses and loss: Cost of goods sold $ 310 Salaries 122 Insurance 42 Depreciation 125 Interest expense 52 Loss on sale of machinery 13 664 Income before tax 166 Income tax expense 83 Net income $ 83 PARNELL COMPANY Selected Accounts from Comparative Balance Sheets December 31, 2018 and 2017 ($ in 000s) Year 2018 2017 Change Cash $ 138 $ 98 $ 40 Accounts receivable 328 214 114 Inventory 319 429 (110 ) Prepaid insurance 64 92 (28 ) Accounts payable 214 115 99 Salaries payable 106 91 15 Deferred income tax liability 64 54 10 Bond discount 188 204 (16 ) Required: 1. Prepare the cash flows from operating activities section of the statement of cash flows for Parnell Company using the direct method. 2. Prepare the cash flows from operating activities section of the statement of cash flows for Parnell Company using the indirect method.

Answer 1

Cashflows from Operating activities (Direct)
Cash received from customers (820-114)	706
Payments
Cash paid to suppliers (310-110-99)	-101
Salaries paid (122-15)		-107
Insurance paid (42-28)		-14
Interest paid (52-16)			-36
Taxes paid (83-10)			-73
Net cash provided from Operating activities	375
Cashflows from Operating activities (Indirect)
Net Income for the year		83
Adjustment required for reconciliation
Depreciation			125
Loss on sale of machinery		13
Gain on sale of building		-10
Discount on bonds payable amortize	16
Increase in Accounts recievable		-114
Decrease in inventory		110
Decrease in Prepaid insurance		28
Increase in Accounts payable		99
Increase in Salaries payable		15
Increase in deferred tax liability		10
Net cash provided from Operating activities	375