Indirect and Direct Method For the Year Ended December 31, 2016 $2100 1,400 700

Question

Indirect and Direct Method

For the Year Ended December 31, 2016 $2100 1,400 700 Revenue Cost of goods sold Gross profit Operating expenses Selling and administrative Depreciation $ 355 85 440 260 78 S 182 Total operating expenses Income before income taxes Income tax expense Net income 12/31/16 12/31/15 Comparative Balance Sheets Assets: Cash Accounts receivable (net) Inventory Property, plant, and equipment Less: Accumulated depreciation 300 227 160 960 (405) $1,242 $ 220 240 120 800 (320) $1,060 Total assets Liabilities and shareholders' equity: Accounts payable Payables for selling and admin. expenses Income taxes payable Long-term debt Common stock Retained earnings $ 130 170 50 100 400 210 $1,060 S 145 147 95 463 392 $1,242 Total liabilities and shareholders' equity

Explanation / Answer

Direct method :

Cash Receipts from Customers = + Net Sales 2100 + Beginning Accounts Receivable 240 Ending Accounts Receivable 227 2113 Cash Payments to Suppliers = + Purchases 1400 + Ending Inventory 160 Beginning Inventory 120 + Beginning Accounts Payable 130 Ending Accounts Payable 145 1425 Cash Payments to Employees = + Beginning Salaries Payable 0 Ending Salaries Payable 0 + Salaries Expense Cash Payments for Purchase of Prepaid Assets = 0 + Ending Prepaid Rent, Prepaid Insurance etc. 0 + Expired Rent, Expired Insurance etc. 0 Beginning Prepaid Rent, Prepaid Insurance etc. 0 Interest Payments = + Beginning Interest Payable 0 Ending Interest Payable 0 + Interest Expense Income Tax Payments = + Beginning Income Tax Payable 50 Ending Income Tax Payable 95 + Income Tax Expens -45 Net cash flow direct method -733 Indirect method Cash flows from operating activities Net income $182 Adjustments for: Depreciation and amortization $85 Provision for losses on accounts receivable 0 Gain on sale of facility 0 267 Decrease in trade receivables 13 Increase in inventories -40 Increase in trade payable 15 Cash generated from operations 255

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