Question

Cash Flows from Operating Activities—Direct Method

The income statement of Booker T Industries Inc. for the current year ended June 30 is as follows:

Sales					$550,000
Cost of merchandise sold					312,300
Gross profit					$237,700
Operating expenses:
	Depreciation expense		$42,210
	Other operating expenses		111,580
		Total operating expenses			153,790
Income before income tax					$83,910
Income tax expense					23,270
Net income					$60,640

Changes in the balances of selected accounts from the beginning to the end of the current year are as follows:

	Increase/ Decrease*
Accounts receivable (net)	$12,190*
Inventories	4,240
Prepaid expenses	4,060*
Accounts payable (merchandise creditors)	8,670*
Accrued expenses payable (operating expenses)	1,210
Income tax payable	2,910*

a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the direct method. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.

Booker T Industries Inc.
Cash Flows from Operating Activities Section
For the year ended on June 30
Cash flows from operating activities:
Cash received from customers ----------------??	$
Cash payments for merchandise ----------------??	$
Cash payments for operating expenses -------------??
Cash payments for income taxes ---------------------??

Answer 1

Cash Receipt From Customer
Sales	550000
Add: Decrease in Account Receivable	12190
Cash Receipt from Customer	562190

Cost of Goods Sold	312300
Add; Decrease in Account Payable	8670
Add: Increase in Inventory	4240
Cash Paid to Supplies	325210

Cash payment for Operating Expense
Other Operating Expense	111580
Less: Decrease in prepaid Expense	-4060
Less: Increase in op Expense	-1210
	106310

Cash payment for Income Tax
Income Tax Expense	23270
Add: Decrease in Income Tax Payable	2910
Cash Payment for Tax	26180