Following are the income statement and some additional information for Carolina

Question

Following are the income statement and some additional information for Carolina Consulting Company.

  

  

All sales were on credit and accounts receivable decreased by $970 in 2016 compared to 2015. Merchandise purchases were on credit with a decrease in accounts payable of $770 during the year. Ending inventory was $570 larger than beginning inventory. Income taxes payable increased $370 during the year. All operating expenses were paid for in cash.

  

Required:

Prepare the cash flows from operating activities section of the statement of cash flows using the direct method. (Amounts to be deducted should be indicated with a minus sign.)

Carolina Consulting Company Income Statement For the Year Ended December 31, 2016   Net sales $ 13,500 Cost of goods sold (2,200 )   Gross margin 11,300   Operating expenses $ 2,700   Depreciation expense 1,250 (3,950 )   Income before taxes 7,350   Income taxes (2,300 )   Net income $ 5,050

Explanation / Answer

Cash collected from Sales = Sales + decrease in accounts receivables

= $13500 + $970 = $14470

Cash payment for purchases = Cost of goods sold + decrease in accounts payable + increase in inventory

= $2200 + $770 + $570 = $3540

Cash paid for income tax = $2300 - $370 = $1930

Cash flow from operating activites is calculated below:

Particulars Amount ($) Cash collected from sales 14470 Less: Cash payment for purchases 3540          : Operating expenses 2700          : Income taxes paid 1930 Cash flow from operating activities 6300

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