Using Direct Method to Calculate Cash Flow from Operating Activities
The following financial statements for Lucy Enterprises are provided:
Income Statement for Year Ending December 31, 1999
|
Sales revenues |
$550,000 |
|
|
Cost of goods sold |
210,000 |
|
|
Gross margin |
$340,000 |
|
|
Salary expenses |
(115,000) |
|
|
Interest expense |
(15,000) |
|
|
Interest revenue |
20,000 |
110,000 |
|
Net income before taxes |
230,000 |
|
|
Tax expense |
92,000 |
|
|
Net income |
$138,000 |
|
Balance Sheet at Year End |
|||||
|
1999 |
1998 |
1999 |
1998 |
||
|
Cash |
$225,000 |
$100,000 |
Accounts payable |
$ 30,000 |
$ 20,000 |
|
Accounts receivable |
124,000 |
135,000 |
Salaries payable |
5,000 |
4,000 |
|
Inventory |
35,000 |
21,000 |
Interest payable |
3,000 |
12,000 |
|
384,000 |
256,000 |
Taxes payable |
2,500 |
3,500 |
|
|
Property, plant, |
40,500 |
39,500 |
|||
|
and equipment |
101,000 |
134,000 |
Shareholders’ |
||
|
Totals |
$485,000 |
$390,000 |
equity |
444,500 |
350,500 |
|
$485,000 |
$390,000 |
||||
Required
Prepare the cash flow from operating activities section of the statement of cash flows, using the direct method and the indirect method. The following amounts must first be calculated when using the direct method:
• Cash collections from customers
• Cash payments to suppliers
• Cash payments to employees
• Taxes paid
• Interest paid
• Interest collected
• Purchases