The income statement of Booker T Industries Inc. for the current year ended June
ID: 2532338 • Letter: T
Question
The income statement of Booker T Industries Inc. for the current year ended June 30 is as follows:
1
Sales
$510,600.00
2
Cost of goods sold
294,400.00
3
Gross profit
$216,200.00
4
Operating expenses:
5
Depreciation expense
$39,000.00
6
Other operating expenses
105,910.00
7
Total operating expenses
144,910.00
8
Income before income tax
$71,290.00
9
Income tax expense
22,690.00
10
Net income
$48,600.00
Changes in the balances of selected accounts from the beginning to the end of the current year are as follows:
Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the direct method. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. In the operating activities section, use the minus sign to indicate cash outflows, decreases in cash and a net cash outflow, if required.
b. What does the direct method show about a company’s cash flows from operating activities that is not shown using the indirect method?
a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the direct method. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. In the operating activities section, use the minus sign to indicate cash outflows, decreases in cash and a net cash outflow, if required.
Cash Flows from Operating Activities Section
1
Cash flows from operating activities:
2
3
4
5
6
1
Sales
$510,600.00
2
Cost of goods sold
294,400.00
3
Gross profit
$216,200.00
4
Operating expenses:
5
Depreciation expense
$39,000.00
6
Other operating expenses
105,910.00
7
Total operating expenses
144,910.00
8
Income before income tax
$71,290.00
9
Income tax expense
22,690.00
10
Net income
$48,600.00
Explanation / Answer
Solution a:
Solution b:
Direct method show exact amount of cash received from operation and cash paid in operation i.e. cash received from customer, cash paid to supplier, cash paid for expenses etc. However in indirect method cash receipt and payment is not shown from different sources. In indirect method, net income is adjusted for increase and decrease in working capital items and non cash items to arrive at cash flow from operating activites.
Computation of cash received from customers Particulars Amount Sales $510,600.00 Add: Decrease in Accounts receivables $12,330.00 Cash received from customers $522,930.00Related Questions
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