Portions of the financial statements for Hawkeye Company are provided below. Req
ID: 2595355 • Letter: P
Question
Portions of the financial statements for Hawkeye Company are provided below.
Required:
1. Prepare the cash flows from operating activities section of the statement of cash flows for Hawkeye Company using the direct method.
2. Prepare the cash flows from operating activities section of the statement of cash flows for Hawkeye Company using the indirect method.
Income Statement
For the Year Ended December 31, 2018 Sales $ 860 Cost of goods sold 330 Gross margin 530 Operating expenses: Salaries $ 228 Depreciation 186 Loss on sale of land 14 Total operating expenses 428 Operating income 102 Other income (expense): Gain on sale of cash equivalents 4 Interest expense (36 ) Income before tax 70 Income tax expense 35 Net income $ 35
Explanation / Answer
Requirement 1:
Cash Flow from operating activities under Direct Method:
Particulars
Amount
Cash flows from operating activities:
Sales
860
Add: Decrease in Accounts Receivables
22
Cash Collections from sales (A)
882
Cost of Goods Sold
330
Add: Increase in Inventories
24
Add: Decrease in Accounts Payables
38
Cash Payments for purchases (B)
392
Expenses:
Selling Expenses (196+228-184)
240
Income Tax Expense (112+35-94)
53
Payments for Expenses (C)
293
Cash Flows from Operating Activities (A-B-C)
197
Requirement 2:
Statement of cash flows using the indirect method:
Particulars
Amount
Cash from operating Activities
Net Income
35
Add: Depreciation
Loss on sale of land
Interest Paid
Income Tax Expense
186
14
36
35
Less: Gain on sale of Cash Equivalents
-4
Cash Operating activities before working capital adjustments, and taxes
302
Working Capital Adjustments
Add: Decrease in Accounts Receivable
Increase in Accounts Payable
Decrease in inventory
Increase in Accrued Liabilities
22
Less: Increase in Inventory
Increase in Salaries Payable
Decrease in Accounts Payable
-24
-12
-38
Cash from operating activities before taxes and extraordinary items
250
Less: Extraordinary loss
Cash From operating activities before taxes
Less: Taxes (112+35-94)
-53
Cash from operating activities
197
Particulars
Amount
Cash flows from operating activities:
Sales
860
Add: Decrease in Accounts Receivables
22
Cash Collections from sales (A)
882
Cost of Goods Sold
330
Add: Increase in Inventories
24
Add: Decrease in Accounts Payables
38
Cash Payments for purchases (B)
392
Expenses:
Selling Expenses (196+228-184)
240
Income Tax Expense (112+35-94)
53
Payments for Expenses (C)
293
Cash Flows from Operating Activities (A-B-C)
197