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The income statement and selected balance sheet information for Direct Products

ID: 2463810 • Letter: T

Question

The income statement and selected balance sheet information for Direct Products Company for the year ended December 31 are presented below.

Income Statement Sales Revenue $ 48,600

Expenses: Cost of Goods Sold 21,000

Depreciation Expense 2,000

Salaries and Wages Expense 9,000

Rent Expense 4,500

Insurance Expense 1,900

Interest Expense 1,800

Utilities Expense 1,400

Net Income $ 7,000

Selected Balance Sheet Accounts

Ending Balances Beginning Balances

Accounts Receivable $ 560 $ 580

Inventory 990 770

Accounts Payable 420 460

Prepaid Rent 25 20

Prepaid Insurance 25 28

Salaries and Wages Payable 100 60

Utilities Payable 20 15

Prepare the cash flows from operating activities section of the statement of cash flows using the direct method. (Amounts to be deducted should be indicated with a minus sign.)

Explanation / Answer

Direct Products Company All Amounts in $ Cash Flows from Operating Activities using Direct Method i. Collections from Receivables Opening Accounts Receivable 560 Sales during the year 48600 Closing Accounts Receivable 580 Collections from Receivables 48580 ii. Payments for Purchases Increase in Accounts Payable -40 Decrease in Inventories -220 Cost of Goods Sold 21000 Payments for Purchases 20740 iii. Payments for Expenses Decrease in Prepaid Rent -5 Decrease in Salaries and Wages Payable 40 Decrease in Utilities Payable 5 Decrease in Prepaid Insurance 3 Salaries and Utilities Expense 10400 Rent and Insurance Expense 6400 Payments for Expenses 16843 iv. Payment for Interest Expense 1800 Net Cash Flows from Operating Activities = i-ii-iii-iv 9197