McMahon Company reports the following income statement for the year ended Octobe
ID: 2420891 • Letter: M
Question
McMahon Company reports the following income statement for the year ended October 31, 2014:
Sales
$2,003,000
Cost of goods sold
920,000
Gross profit
1,083,000
Depreciation expense
45,000
Wages expense
224,000
Interest expense
21,000
Net income
$ 793,000
The company also reports the following information from the balance sheet:
October 31, 2014
October 31, 2013
Cash
$ 57,000
$ 43,000
Accounts receivable
71,000
97,000
Inventory
163,000
152,000
Accounts payable
51,000
44,000
Interest payable
7,000
5,000
Wages payable
10,000
13,000
Notes payable
200,000
240,000
Required:
Prepare, in good form, the operating section of the statement of cash flow, using the direct method for McMahon Company for October 31, 2014.
Prepare, in good form, the operating section of the statement of cash flow, using the indirect method for McMahon Company for October 31, 2014.
Sales
$2,003,000
Cost of goods sold
920,000
Gross profit
1,083,000
Depreciation expense
45,000
Wages expense
224,000
Interest expense
21,000
Net income
$ 793,000
Explanation / Answer
Statement of Cash Flow
Direct MEthod
CAsh Flow -INdirect Method
Sales 2003000 Add Decrease in Accounts Receivable (97000-71000) 26000 Cash Collection 2029000 less Cost of Goods Sold 920000 Add Increase in Inventory (163000 - 152000) 11000 less Increase in Accounts payable (51000-44000) (7000) CAsh Payment for Purchases 924000 Interest Expense 21000 Less Increase in Interst Payalbe (2000) CAsh Interest 19000 Wages Expense 224000 Add Decrease in Wages PAyable 3000 CAsh Payment for wages 227000 less decrease in Notes payable 40000 CAsh flow from Operating activities 819000