Question

8. 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					$478,530
Cost of merchandise sold					271,710
Gross profit					$206,820
Operating expenses:
	Depreciation expense		$36,720
	Other operating expenses		97,080
		Total operating expenses			133,800
Income before income tax					$73,020
Income tax expense					20,260
Net income					$52,760

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)	$10,600*
Inventories	3,690
Prepaid expenses	3,530*
Accounts payable (merchandise creditors)	7,540*
Accrued expenses payable (operating expenses)	1,060
Income tax payable	2,530*

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 outflows, 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
Net cash flow from operating activities		$

Answer 1

Solution

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	$       489,130.00
Cash payments for merchandise	$      (282,940.00)
Cash payments for operating expenses	$       (92,490.00)
Cash payments for income taxes	$       (22,790.00)
Net cash flow from operating activities		$              90,910.00

Working

Cash received from customers
Sales revenue	$ 478,530
Add: Decrease in accounts receivable	$ 10,600
Cash received from customers	$ 489,130

.

Cash payments for merchandise
Cost of goods sold	$      271,710.00
Add: Increase in Inventory	$          3,690.00
Net purchases	$      275,400.00
Add: Decrese in Accounts payable	$          7,540.00
Cash payments for merchandise	$      282,940.00

.

Cash payments for Operating expenses
Operating expenses excluding depreciation	$ 97,080.00
Less: Increase in accrued expense	-$ 1,060.00
Less: Decrease in prepaid expense	-$ 3,530.00
Cash paid for operating expenses	$ 92,490.00

.

Cash paid for Income tax
Income tax expense	$ 20,260
Add: Decrease in income tax payable	$ 2,530
Cash paid for Income tax	$ 22,790