Operating Cash Flows, Direct and Indirect Methods (LO 3, 4] Sellmer\'s Pasta, In

Question

Operating Cash Flows, Direct and Indirect Methods (LO 3, 4] Sellmer's Pasta, Inc., has the following financial statements: At the end of 2014, Sellmer purchased additional equipment for $24,625. Sellmer paid dividend of $5,000 during the year. Required Prepare a statement of cash flows for 2014 using the direct method. Assume that advertising is paid in cash. Prepare the operating activities section of the statement of cash flows for 2014 using the indirect method. Note that there is no difference between the two methods for the investing and financing sections.

Explanation / Answer

Note : Figures in brackets mean - MINUS

STATEMENT OF CASH FLOWS - DIRECT METHOD Particulars $ $ Cash flows from operating activities : Cash receipts from customers 446,500 Cash paid to suppliers (159,400) Cash paid to employees (172,400) Cash paid towards advertising expenses (16,400) Cash paid towards expenses (199080-183800+12200) (27,480) Net cash flow from operating activities 70,820 Cash flow from investing activities : Purchase of equipment (24,625) Cash flow from financing activities : payment of short term notes (4,300) payment of long term notes (18,995) dividends paid (5,000) net cash used in financing activities (28,295) NET INCREASE IN CASH / CASH EQUIVALENTS 17,900 Cash / cash equivalents at the beginning of the period 263,000 Cash / cash equivalents at the end of the period 280,900

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