The following schedule relates the income statement with cash flows from operati

Question

The following schedule relates the income statement with cash flows from operating activities, derived by both the direct and indirect methods. The amounts for income statement elements are missing.

Required:
Deduce the missing amounts and prepare the income statement.

Cash Flows from Operating Activities Income Statement Indirect Method Direct Method Net income $ ? Adjustments: Sales $ ? Decrease in accounts receivable 16 Cash received from customers $ 666 Cost of goods sold ? Increase in inventory (32 ) Decrease in accounts payable (45 ) Cash paid to suppliers (467 ) Salaries expense ? Increase in salaries payable 17 Cash paid to employees (42 ) Depreciation expense ? Depreciation expense 23 (Not reported—no cash effect) Insurance expense ? Decrease in prepaid insurance 24 Cash paid for insurance (20 ) Loss on sale of land ? Loss on sale of land 20 (Not reported—no cash effect) Income tax expense ? Increase in income tax payable 20 Cash paid for income taxes (40 ) Net income $ ? Net cash flows from operating activities $ 97 Net cash flows from operating activities $ 97

Explanation / Answer

Cost of Good Sold :-

Cash paid to Supplier = $467

Purchase = Cash paid to Supplier + Increase in Accounts Payable

Purchase = $467 + $45

Purchase = $512

Cost of Good Sold = Purchase - Increase in Inventory

Cost of Good Sold = $512-$32

Cost of Good Sold = $480

Particulars Calculation Amount($) Sales (480+260) 740 Cost of Goods Sold (480) Gross Profit (59+23+44+20+60+54) 260 Salaries Expense (17+42) (59) Depreciation Expense (23) Insurence Expense (24+20) (44) Loss on Sale of Land (20) Income Tax Expense (40+20) (60) Net Income (97-20-20-24-23-17+45+32-16) 54

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