Question

Payment of salaries and wages	$ 31,000
Depreciation	27,000
Increase in current liabilities	20,000
Increase in current assets other than cash	24,000
Payment of dividends	12,000
Collection of accounts receivable	105,000
Net income	$ 50,000
Payment of income tax	20,000
Collection of dividend revenue	14,000
Payment of interest	13,000
Cash sales	36,000
Gain on sale of land	3,000
Acquisition of land	38,000
Payment of accounts payable	55,000

Compute cash flows from operating activities by the direct method. Also evaluate Jasmine’s operating cash flow. Give the reason for your evaluation.

Answer 1

1) Cash flow from operating activties - Direct method

Cash flow from Operating activities
Cash received from customers
cash sales	$36,000
collection of accounts receivables	$1,05,000
Cash received from customers		$1,41,000
Cash paid to suppliers		$55,000
Payment of wages and salaries		$31,000
payment of income tax		$20,000
Payment of interest		$13,000
Dividend received		$14,000
Cash flow from Operating activities		$36,000

2) Operating cash flow = net income + non cash expenses - gain on sale of land + changes in working capital

= 50000 + 27000 -3000- 24000+ 20000

= $70000