Portions of the financial statements for Myriad Products are provided below. Req
ID: 2521423 • Letter: P
Question
Portions of the financial statements for Myriad Products are provided below.
Required:
Prepare the cash flows from operating activities section of the statement of cash flows for Myriad Products Company using the direct method. (Amounts to be deducted should be indicated with a minus sign. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)
Income Statement
For the Year Ended December 31, 2018
($ in millions) Sales $ 720 Cost of goods sold 252 Gross margin 468 Salaries expense $ 105 Depreciation expense 80 Patent amortization expense 5 Interest expense 20 Loss on sale of land 4 214 Income before taxes 254 Income tax expense 127 Net Income $ 127
Explanation / Answer
Solution:
Cash Flow from Operating Activities (Direct Method)
Cash receipts from customers (Refer Note 1)
$738
(-) Cash payments to merchandise (Note 2)
-$224
(-) Cash payment for Salaries expense (refer note 4)
-$117
(-) Income Taxes paid (Refer note 6)
-$116
Net Cash Flow from Operating Activities
$281
Note --- It is assumed that Interest Expense is a financing activity hence not taken in Operating Activity.
Note 1 -- Cash receipts from Customers
Beginning Accounts Receivable
$250
Plus: Credit Sales made during the year
$720
Less: Ending Accounts Receivable
-$232
Cash Collected from Customers
$738
Note 2 -- Cash payment for merchandise
Beginning Accounts Payable
$158
Plus: Purchases made during the year (refer note 3)
$236
Less: Ending Accounts Payable
-$170
Cash Paid to Supplier during the year
$224
Note 3 -- Purchase made during the year
Cost of Goods Sold
$252
Plus: Ending Inventory
$446
Less: Beginning Inventory
-$462
Purchases made during the year
$236
Note 4 -- Cash paid for salaries expense
Salaries Expense incurred during the year
$105
Add: Beginning Balance
$98
Less: Ending balance
-$86
Cash paid for salaries expense
$117
Note 5 -- Cash paid for Interest
Interest Expense incurred during the year
$20
Add: Beginning Balance
$32
Less: Ending balance
-$43
Cash paid for interest
$9
Note 6 -- Cash paid for Income Taxes
Income tax expense incurred during the year
$127
Add: Beginning Balance
$22
Less: Ending balance
-$33
Cash paid for Income Taxes
$116
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Cash Flow from Operating Activities (Direct Method)
Cash receipts from customers (Refer Note 1)
$738
(-) Cash payments to merchandise (Note 2)
-$224
(-) Cash payment for Salaries expense (refer note 4)
-$117
(-) Income Taxes paid (Refer note 6)
-$116
Net Cash Flow from Operating Activities
$281