The income statement of Vince Gill Company is shown below. VINCE GILL COMPANY IN

Question

The income statement of Vince Gill Company is shown below. VINCE GILL COMPANY INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2014 Sales revenue $6,815,000 Cost of goods sold Beginning inventory $1,899,060 Purchases 4,393,730 Goods available for sale 6,292,790 Ending inventory 1,600,070 Cost of goods sold 4,692,720 Gross profit 2,122,280 Operating expenses Selling expenses 440,680 Administrative expenses 693,320 1,134,000 Net income $988,280 Additional information: 1. Accounts receivable decreased $316,400 during the year. 2. Prepaid expenses increased $171,010 during the year. 3. Accounts payable to suppliers of merchandise decreased $281,780 during the year. 4. Accrued expenses payable decreased $122,830 during the year. 5. Administrative expenses include depreciation expense of $50,460. Prepare the operating activities section of the statement of cash flows using the direct method.

Explanation / Answer

Cash Flow statement is prepared as under:

Vince Gill Company Cash Flow Statement (Direct Method) For Year Ending Dec. 31, 2014 Cash Flow from Direct Operating Activities Amount ($) Cash flows from operating: Cash received from customers: 71,31,400 Cash Payments:    To suppliers 46,76,160    For operating expenses 13,77,380 Net Cash provided by operating activities 10,77,860 Cash received from Customers Sales 68,15,000 Decrease in AR 3,16,400 71,31,400 Cash Payment to suppliers: Cost of goods sold 46,92,720 Less: Decrease in inventories 2,98,340 Add: Decrease in AP 2,81,780 46,76,160 Cash payment for operating expenses: Operating expenses, excluding depreciation 10,83,540 Add: Increase in prepaid exp 1,71,010 Add: Decrease in accrued exp 1,22,830 13,77,380

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