1. Pax Corp. uses the direct method to prepare its statement of cash flows. Pax\

Question

1. Pax Corp. uses the direct method to prepare its statement of cash flows. Pax's trial balances at December 31, 2015 and 2014 are as follows:

Pax purchased $4,000 in equipment during 2015.

Pax allocated one third of its depreciation expense to selling expenses and the remainder to general and administrative expenses. There were no write-offs of accounts receivable during 2015.

Required: For Pax’s December 31, 2015 Statement of Cash Flows, answer the following questions:

What is cash collected from customers for December 31, 2015?

What is cash paid for purchases of merchandise inventory goods to be sold?

What is cash paid for interest?

What is cash paid for income taxes?

What is cash paid for selling expenses?

2015 2014 Debits cash 40,200 36,000 accounts recievable 32,000 27,000 inventory 29,680 45,000 property, plant, eqt. 72,000 75,000 unamortized bond discount 3,600 4,000 cost of goods sold 220,000 345,000 selling expenses 118,000 140,000 General & administrative exp. 100,100 130,000 interest expense 4,135 2,500 income tax expense 14,400 41,200 $634,115 $845,700 Credits allowance for uncolletible acc. 1,100 1,000 accumilated depreciation 10,500 12,000 trade accounts payable 22,000 15,500 income taxes payable 18,000 24,100 deferred income taxes 6,000 4,000 8% callable bonds payable 35,000 18,000 common stock 38,000 22,000 additional paid-in capital 8,100 6,500 Retained earnings 57,915 52,000 sales 437,500 690,600 $634,115 $845,700

Explanation / Answer

Cash Collected from Customers:

Opening Accounts Receivable + Sales – Cash received = Closing Accounts Receivable

27000 + 437500 – Cash received = 32000

Cash received = 27000 + 437500 – 32000 = 432500

Cash Collected from Customers = $432500

Purchases:

Opening Inventory + Purchases – Closing Inventory = Cost of goods sold

45000 + Purchases – 29680 = 220000

Purchases = 220000 – 45000 + 29680

Purchases = 204680              

Cash paid for purchases:

Opening Accounts Payable + purchases – Cash Paid = Closing Accounts Payable

15500 +   204680 – Cash Paid = 22000

Cash Paid = 15500 + 204680 – 22000

Cash Paid = $198180

Cash Paid for Interest:

Interest Expense = $4135

Cash Paid for Income Taxes:

Opening Income Tax Payable + Income Expense – Income Tax Paid = Closing Income Tax Payable

24100 + 14400 – Income Tax Paid = 18000

Income Tax Paid = 24100 + 14400 – 18000

Income Tax Paid = $20500

Cash Paid for Selling Expenses:

Depreciation

= Value as at the end of 2014 + Purchases – Value as at the end of 2015

= 75000 + 4000 – 72000

= 7000

Cash Paid for Selling Expenses

= Selling Expenses - 1/3(Depreciation)

= 118000 - 1/3(7000)

= 118000 - 2333

= 115667

Cash Paid for Selling Expenses = $115667

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