Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 13 Statement of Cash Flows 609

Income before income tax $ 76,800

Income tax expense 25,400

Net income $ 51,400

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) $12,000*

Inventories 4,200

Prepaid expenses 2,500*

Accounts payable (merchandise creditors) 8,400*

Accrued expenses (operating expenses) 2,300

Income tax payable 3,600*

Prepare the cash flows from operating activities section of the statement of cash flows, using the

direct method.

The income statement for Wholly Bagel Company for the current year ended June 30 and bal-

ances of selected accounts at the beginning and the end of the year are as follows:

Sales $265,000

Cost of merchandise sold 95,800

Gross profit $169,200

Operating expenses:

Depreciation expense $ 12,500

Other operating expenses 125,700

Total operating expenses 138,200

Income before income tax $ 31,000

Income tax expense 12,300

Net income $ 18,700

Beginning of

End of Year Year

Accounts receivable (net) $14,800 $12,500

Inventories 38,100 32,800

Prepaid expenses 6,000 6,400

Accounts payable (merchandise creditors) 27,900 24,300

Accrued expenses (operating expenses) 7,900 8,400

Income tax payable 1,500 1,500

Prepare the cash flows from operating activities section of the statement of cash flows, using the

direct method.

The comparative balance sheet of Contemporary Millworks, Inc., for December 31, 2008 and

2007, is shown at the top of the following page.

The following additional information is taken from the records:

a. Land was sold for $13.

b. Equipment was acquired for cash.

c. There were no disposals of equipment during the year.

d. The common stock was issued for cash.

e. There was a $30 credit to Retained Earnings for net income.

f. There was a $4 debit to Retained Earnings for cash dividends declared.

Prepare a statement of cash flows, using the indirect method of presenting cash flows from

operating activities.

Exercise 13-22

Cash flows from operating
activities—direct method

Goal 3

Cash flows from operating
activities, $27,100

Exercise 13-23

Statement of cash flows

Goal 2

Net cash flow from
operating activities, $29