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
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