*Problem 12-4A The income statement of Paxson Company is presented here. PAXSON

ID: 2337650 • Letter: #

Question

*Problem 12-4A The income statement of Paxson Company is presented here. PAXSON COMPANY Income Statement For the Year Ended November 30, 2014 Sales revenue $7,600,000 Cost of goods sold Beginning inventory $1,900,000 4.400,000 6,300,000 Goods available for sale Ending inventory Total cost of goods sold Gross Operating expenses 4,700,000 2,900,000 Selling expenses 450,000 700,000 Administrative expenses Net income 1,750,000 Additional information: 1. Accounts receivable decreased $380,000 during the year, and inventory decreased $300,000. 2. Prepaid expenses increased $150,000 during the year 3. Accounts payable to suppliers of merchandise decreased $350,000 during the year Accrued expenses payable decreased $100,000 during the year 5. Administrative expenses include depreciation expense of $110,000. Prepare the operating activities section of the statement of cash flows using the direct method. (Show amounts that decrease cash flow with either a -sign e.g. -15,000 or in parenthesis e.g. (15,000).) PAXSON COMPANY Partial Statement of Cash Flows For the Year Ended November 30, 2014

Explanation / Answer

PAXSON COMPANY

Partial Statement of Cash flows

For the year ended November 30th , 2014

A. Cash Flows from Operating Activity

Net Income

$ 1,750,000.00

Adjustments to reconcile net income to net cash flows from operating activities

Depreciation expense

$ 110,000.00

Decrease in Accounts receivables

$ 380,000.00

Decrease in Accounts payables

$(350,000.00)

Decrease in Inventory

$ 300,000.00

Increase In Prepaid Expenses

$(150,000.00)

Decrease in Accrues Expenses payable

$(100,000.00)

$ 190,000.00

Net cash flow from Operating activities

$ 1,940,000.00

Note:

Depreciation is a non cash Expense that is why it is added back to Operating profit to calculated cash generated from operations.

When Current asset Increase or Current Liability Decrease this means that cash is used.

When Current asset Decrease or Current Liability Increase this means that cash has been saved and hence added to cash from Operations. .