Question

The independent cases are listed below that includes all items relevant to operating activities: Case A Case B Case C Sales revenue $ 71,000 $ 61,000 $ 102,000 Cost of goods sold 38,000 29,000 68,200 Depreciation expense 10,600 2,600 26,600 Salaries and wages expense 5,600 13,600 8,600 Net income 16,800 15,800 (1,400 ) Accounts receivable increase (decrease) (1,000 ) 4,600 3,600 Inventory increase (decrease) 2,600 0 (3,600 ) Accounts payable increase (decrease) 0 3,100 (1,000 ) Salaries and wages payable increase (decrease) 1,800 (2,600 ) 1,000 Compute cash flows from operating activities using the direct method. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

To calculate cash flows from operating activities using the direct method, adjust sales revenue for changes in accounts receivable, subtract adjusted costs of goods sold and salaries, and make additional adjustments for changes in inventory and accounts payable.

Step-by-step explanation:

Calculating Cash Flows from Operating Activities

To compute the cash flows from operating activities using the direct method, we follow these steps for each case:

1. Begin with sales revenue and adjust for the change in accounts receivable to find cash collected from customers.
2. Subtract the cost of goods sold and adjust for the inventory and accounts payable changes to find cash paid to suppliers.
3. Subtract the salaries and wages expense and adjust for the change in salaries and wages payable to find cash paid to employees.
4. Subtract any other operating expenses, adjusting for any associated changes in liabilities or assets that affect cash.

However, in these particular cases, the only expenses we are given are for cost of goods sold, depreciation, and salaries and wages. Since depreciation expense doesn't affect cash, only cases with changes in receivables, inventory, and accounts payable will have adjustments.

Note that in a real-world scenario, there might be other adjustments necessary for items such as other operating expenses, interest paid, and income taxes paid.

Here's how the calculation would look for Case A (as an example):
Cash collected from customers = Sales revenue - Increase in accounts receivable = $71,000 - ($-1,000) = $72,000
Cash paid to suppliers = Cost of goods sold - Increase in inventory + Increase in accounts payable = $38,000 - $2,600 + $0 = $35,400
Cash paid to employees = Salaries and wages expense - Increase in salaries and wages payable = $5,600 - $1,800 = $3,800

These computations would repeat for each case, and the subtotal of these amounts would give the cash flows from operating activities for that case.