EX 16-22 Cash flows from operating activities—direct method
The income statement of Goliath Industries Inc. for the current year ended June 30 is as follows:
|
Sales |
$273,600 |
|
|
Cost of merchandise sold |
155,400 |
|
|
Gross profit |
$118,200 |
|
|
Operating expenses: |
||
|
Depreciation expense |
$21,000 |
|
|
Other operating expenses |
55,440 |
|
|
Total operating expenses |
76,440 |
|
|
Income before income tax |
$41,760 |
|
|
Income tax expense |
11,580 |
|
|
Net income |
$30,180 |
Changes in the balances of selected accounts from the beginning to the end of the current year are as follows:
|
Increase |
|
|
Decrease* |
|
|
Accounts receivable (net) |
$6,300* |
|
Inventories |
2,100 |
|
Prepaid expenses |
2,040* |
|
Accounts payable (merchandise creditors) |
4,320* |
|
Accrued expenses payable (operating expenses) |
660 |
|
Income tax payable |
1,440* |
a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the direct method.
b. What does the direct method show about a company’s cash flow from operating activities that is not shown using the indirect method?