Problem 21-8 Cash flows from operating activities (direct method and indirect me

Question

Problem 21-8 Cash flows from operating activities (direct method and indirect method)-deferred income tax liability and amortization of bond discount [LO21-3, 21-4]

Portions of the financial statements for Parnell Company are provided below.

Required:

1. Prepare the cash flows from operating activities section of the statement of cash flows for Parnell Company using the direct method.
2. Prepare the cash flows from operating activities section of the statement of cash flows for Parnell Company using the indirect method.

PARNELL COMPANY
Income Statement
For the Year Ended December 31, 2018
($ in 000s) Revenues and gains: Sales $ 750 Gain on sale of buildings 11 $ 761 Expenses and loss: Cost of goods sold $ 275 Salaries 115 Insurance 35 Depreciation 118 Interest expense 45 Loss on sale of machinery 13 601 Income before tax 160 Income tax expense 80 Net income $ 80

Explanation / Answer

Direct method Statement of cash flow Cash flows from operating activities Cash inflows From customers 750-98 652 Cash outflow 652 Payment to suppliers 275+94-83 -286 Payment of Insurance 35+12 -47 Paymentof salaries 115+14 -129 Payment of Income tax 80+13 -93 Payment of Interest 45-25 -20 273 Net cash from operating activities     273.00 Indirect method Statement of cash flow Cash flows from operating activities net income $80 Adjustments to convert net income to cash basis Depreciation expenses   118 Loss on sale of machinery 13 Gain on sale of Building -11 Increase in Accounts receivable -98 Decrease in Inventories 94 increase in Accounts Payable 83 Decrease in prepaid rent -12 Increase in salaries payable 14 Decrease in Bond discount -25 Increase in Deferred Income tax liabilty 13 189 Net cash from operating activities 269

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