The income statement and a schedule reconciling cash flows from operating activi

Question

The income statement and a schedule reconciling cash flows from operating activities to net income are provided below ($ in 000s) for Peach Computers. PEACH COMPUTERS Income Statement For the Year Ended December 31, 2016 Sales $ 485.0 Cost of goods sold (194.0 ) Gross margin 291.0 Salaries expense $ 57.0 Insurance expense 34.0 Depreciation expense 16.0 Loss on sale of land 14.0 121.0 Income before tax 170.0 Income tax expense (85.0 ) Net income $ 85.0 Reconciliation of Net Income To Net Cash Flows from Operating Activities Net income $ 85.0 Adjustments for Noncash Effects Depreciation expense 16.0 Loss on sale of land 14.0 Changes in operating assets and liabilities: Decrease in accounts receivable 18.0 Increase in inventory (73.0 ) Decrease in accounts payable (44.0 ) Increase in salaries payable 29.0 Decrease in prepaid insurance 15.0 Increase in income tax payable 80.6 Net cash flows from operating activities $ 140.6 Required: 1. Calculate each of the following amounts for Peach Computers: a. Cash received from customers during the period b. Cash paid to suppliers of goods during the reporting period. c. Cash paid to employees during the reporting period d. Cash paid for insurance during the reporting period. e. Cash paid for income taxes during the reporting period. 2. Prepare the cash flows from operating activities section of the statement of cash flows (direct method).

Explanation / Answer

1) a) Cash received from customers : Let opening receivables = x Then closing receivable = x - 18 Cash received from customer = y Now , opening receivable + Current Sales - Cash received = closing receivable x + 485 - y = x -18 Solving for the above , we get y = 485 + 18 = 503 Hence , cash received from customers = 503 b) Cash paid to suppliers of goods Let opening suppliers = x Then closing suppliers = x - 44 Cash paid tosupplier = y opening payable + Current Cost of goods sold - Cash paid = closing payable x + 194 - y = x -44 Solving for the above , we get y = 194 + 44 = 238 Hence cash paid to suppliers = 238 c) Cash paid to employees Let opening salary payable = x Then closing salary payable = x +29 Cash paid to employees = y opening salary payable + Current salary Cost - Cash paid = closing salary payable x + 57 - y = x + 29 Solving for the above , we get y = 57- 29 = 28 d) Cash paid for insurance Let opening insurance payable = x Then closing insurance payable = x - 15 Cash paid to insurance = y opening insurance payable + Current insurance Cost - Cash paid = closing insurance payable x + 34 - y =x - 15 Solving for the above , we get y =34 + 15 = 49 Cash paid for insurance = 59 e) Cash paid for income tax Let opening tax payable = x Then closing tax payable = x + 80.6 Taxes paid   = y opening tax payable + Current tax Cost - Cash paid = closing tax payable x + 85 - y = x + 80.6 Solving for the above , we get y = 85 - 80.6 = 4.40 b) Cash flow from operating activities - Direct Method Cash Receipts from Customers 503 Cash Payments             Suppliers 238              Employees 28              Insurance 59              Income tax 4.4 329.4 Net cash flow from operating activities 173.6

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