Portions of the financial statements for Parnell Company are provided below. Req
ID: 2533241 • Letter: P
Question
Portions of the financial statements for Parnell Company are provided below.
Required:
1. Prepare the cash flows from operating activities section of the statement of cash flows for Parnell Company using the direct method.
2. Prepare the cash flows from operating activities section of the statement of cash flows for Parnell Company using the indirect method.
Income Statement
For the Year Ended December 31, 2018
($ in 000s) Revenues and gains: Sales $ 880 Gain on sale of buildings 10 $ 890 Expenses and loss: Cost of goods sold $ 340 Salaries 128 Insurance 48 Depreciation 131 Interest expense 58 Loss on sale of machinery 13 718 Income before tax 172 Income tax expense 86 Net income $ 86
Explanation / Answer
Cash flows from operating activities using direct method:
Amount ($'000)
Amount ($'000)
Cash received from accounts receivable (Note 10
748.00
Cash paid to accounts payable (Note 2)
(95.00)
Salaries paid in cash
(95.00)
Insurance premium paid in cash (Note 4)
(94.00)
Cash flows from operating activities (Note 5)
464.00
Less: Income tax paid in cash (Note 6)
70.00
Net cash flows from operating activities
394.00
Note:
Note 1
Opening accounts receivable
208
Add: Sales (Assuming credit sales)
880
1088
Less: Closing accounts receivable
340
Cash received accounts receivable
748
Note 2
Opening accounts payable
109
Add: Purchases during the year (Note 3)
212
321
Less: Closing accounts payable
226
Cash paid to accounts payable
95
Note 3
Closing inventory
313
Add: Cost of goods sold
340
653
Less: Opening inventory
441
Purchases during the year
212
Note 4
Salaries payable opening
85
Add; Salaries expenses for the year
128
213
Less: Closing salaries payable
118
Salaries paid in cash
95
Note 5
Closing prepaid insurance
104
Add: Insurance expenses
48
152
Less: opening prepaid insurance
58
Insurance premium paid in cash
94
Note 6
Opening income tax payable balance
60
Add: income tax expenses
86
146
Less: Closing income tax payable
76
Income tax paid during the year
70
Cash flows from operating activities using indirect method:
Amount ($'000)
Amount ($'000)
Net income before tax
172
Add / (less):
Gain on sale of building being non-operating activities
-10
Depreciation being non-operating expenses
131
Interest expenses being non-operating expenses
58
Loss on sale of machine being non-operating expenses
13
192
364
Add/ (Less): (Increase)/ decrease in working capital
Decrease in working capital (435 - 335)
100
464
Less: Income tax paid
70
394
Note: changes in working capital:
2018
2017
Cash
150
92
Accounts receivable
340
208
Inventory
313
441
Prepaid insurance
58
104
Total current assets
861
845
Less: Total current liabilities
Accounts payable
226
109
Salaries payable
118
85
Bond discount
182
216
526
410
Working capital
335
435
Decrease in working capital in 2018 (559 - 367)
100
Cash flows from operating activities using direct method:
Amount ($'000)
Amount ($'000)
Cash received from accounts receivable (Note 10
748.00
Cash paid to accounts payable (Note 2)
(95.00)
Salaries paid in cash
(95.00)
Insurance premium paid in cash (Note 4)
(94.00)
Cash flows from operating activities (Note 5)
464.00
Less: Income tax paid in cash (Note 6)
70.00
Net cash flows from operating activities
394.00