Green Brands, Inc. (GBI) presents its statement of cash flows using the indirect
ID: 2511852 • Letter: G
Question
Green Brands, Inc. (GBI) presents its statement of cash flows using the indirect method. The following accounts and corresponding balances were drawn from GBI’s 2017 and 2016 year-end balance sheets:
Account Title 2017 2016 Accounts receivable $ 48,000 $ 52,000 Merchandise inventory 78,000 72,000 Prepaid insurance 24,000 32,000 Accounts payable 31,000 28,000 Salaries payable 8,200 7,800 Unearned service revenue 2,400 3,600
The 2017 income statement is shown below: Income Statement Sales $ 720,000 Cost of goods sold (398,000 ) Gross margin 322,000 Service revenue 6,000 Insurance expense (36,000 ) Salaries expense (195,000 ) Depreciation expense (12,000 ) Operating income 85,000 Gain on sale of equipment 4,500 Net income $ 89,500
Required Prepare the operating activities section of the statement of cash flows using the direct method. Prepare the operating activities section of the statement of cash flows using the indirect method.
Explanation / Answer
Req Aa: Cashflows from Operating Activities (Direct method) Cash received from Accounts receivable(720000+52000-48000) 724000 Cash Paid to Accounts payable -401,000 Cash received from Service revenue (6000+2400-3600) 4,800 Payment for Insurance (36000+24000-32000) -28,000 payment for salaries (195000+7800-8200) -194,600 Net cash provided from Operating Activities 105,200 Note: cash paid to Accounts payable: COGS 398000 Add: Ending Inventory 78000 less: beginning Inventory 72000 Purchases 404000 Add: Beginning Accounts payable 28,000.00 less: Ending Accounts payable 31,000 Amount paid 401000 Req b: Cash flows from Operating Activities (indirect method) Net Income for the year 89500 Adjustment to be made for reconciling with cash flows Depreciation expense 12000 Gain on sale of equipment -4500 Decrease in Accounts receivable (52000-48000) 4000 Increase in Inventory (78000-72000) -6000 Decrease in prepaid insurance (24000-32000) 8000 Increase in Accounts payable 3000 Increase in salaries payable 400 Decrease in unearned service revenue -1200 Net cash provided from operating activites 105200
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