Question

Consider the following financial statements about DANIEL Co. for the current year 2015

I/S for the year ended Dec. 31, 2015
Sales $16,000
CGS 10,000
Operating expenses 4,000
Profit from operations (EBIT) 2,000
Interest expense 200
EBT 1,800
Tax expense 600
NI $ 1,200
Additional information:
Operating expenses include $150 of depreciation expense and a $200 impairment loss on equipment.
A/R increased by $380
Inventory decreased by $100
Prepaid expenses related to operating expense increased by $80
A/P decreased by $360
Accrued liabilities related to operating expenses decreased by $180
Interest payable decreased by $20
Unearned revenue received from customers decreased by $34
Income tax payable increased by $40
Required:
Prepare CFO section of the cash flow statement under the (a) DIRECT (12 marks);
and (b) INDIRECT methods (8 marks)

Answer 1

a. For the Year Ended December 31, 2015

Cash flows from operating activities:

Cash received from customers 15586

Cash paid to suppliers -10260

Cash paid for operating expenses -3910

Cash paid for interest -220

Cash paid for income taxes -560

Net cash flow from operating activities 636

Working:

Sales 16000

Less: Increase in accounts receivable -380

Less: Decrease in unearned revenue -34

Cash received from customers 15586

Cost of goods sold 10000

Add: Decrease in accounts payable 360

Less: Decrease in inventory -100

Cash paid to suppliers 10260

Operating expenses 4000

Less: Noncash expenses

Depreciation expense -150

Impairment loss -200

Cash operating expenses 3650

Add: Increase in prepaid expenses 80

Add: Decrease in accrued liabilities 180

Cash paid for operating expenses 3910

Interest expense 200

Add: Decrease in interest payable 20

Cash paid for interest 220

Income tax expense 600

Less: Increase in income tax payable -40

Cash paid for income taxes 560

(b) Partial Cash Flow Statement (Indirect Method)

For the Year Ended December 31, 2015

Cash flows from operating activities

Net income 1200

Adjustments to reconcile net

income to operating cash flows:

Depreciation expense 150

Impairment loss 200

Increase in accounts receivable -380

Decrease in inventory 100

Increase in prepaid expenses -80

Decrease in accounts payable -360

Decrease in accrued liabilities -180

Decrease in interest payable -20

Decrease in unearned revenue -34

Increase in income tax payable 40 -564

Net cash flow from operating activities 636