Question

Wildhorse Company’s income statement for the year ended December 31, 2017, contained the following condensed information. Service revenue $842,000

Operating expenses (excluding depreciation) $626,000
Depreciation expense 61,000
Loss on sale of equipment 27,000 714,000
Income before income taxes 128,000
Income tax expense 40,000
Net income $88,000
Wildhorse’s balance sheet contained the following comparative data at December 31.
2017 2016
Accounts receivable $37,000 $56,000
Accounts payable 39,000 33,000
Income taxes payable 4,100 8,400
(Accounts payable pertains to operating expenses.)
Required:
a. Prepare the operating activities section of the statement of cash flows using the direct method.

Answer 1

Cash flow from operating activities

Cash Receipts from Customers 861,000

Cash Paid to Suppliers and Employees (605,000)

Cash Generated from Operations 256,000

Taxation Paid (44,300)

Net Cash from Operating Activities 211,700

Step-by-step explanation:

Cash flow from operating activities

Cash Receipts from Customers 861,000

Cash Paid to Suppliers and Employees (605,000)

Cash Generated from Operations 256,000

Taxation Paid (44,300)

Net Cash from Operating Activities 211,700

Cash Receipts from Customers

Open a Total Trade Receivables Account and Obtain the Cash Receipts as follows

Debit :

Accounts receivable $56,000

Service revenue $842,000

Totals $898,000

Credit :

Accounts receivable $37,000

Cash (Balancing figure) $861,000

Totals $898,000

Cash Paid to Suppliers and Employees

Operating expenses (excluding depreciation) 626,000

Loss on Sale of equipment (27,000)

Total Relevant Expenses 599,000

Adjust for Working Capital Items :

Increase in Accounts payable (39,000-33,000) 6,000

Cash Paid to Suppliers and Employees 605,000

Taxation Paid

Open a Total Trade Receivables Account and Obtain the Cash Receipts as follows:

Debit :

Cash (Balancing Figure) 44,300

Income taxes payable 4,100

Totals 48,400

Credit :

Income taxes payable 8,400

Income tax expense 40,000

Totals 48,400