Question

he income statement of Sarasota Company is shown below. SARASOTA COMPANY INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2020 Sales revenue $6,890,000 Cost of goods sold Beginning inventory $1,910,000 Purchases 4,410,000 Goods available for sale 6,320,000 Ending inventory 1,620,000 Cost of goods sold 4,700,000 Gross profit 2,190,000 Operating expenses Selling expenses 460,000 Administrative expenses 700,000 1,160,000 Net income $1,030,000 Additional information: 1. Accounts receivable decreased $350,000 during the year. 2. Prepaid expenses increased $160,000 during the year. 3. Accounts payable to suppliers of merchandise decreased $300,000 during the year. 4. Accrued expenses payable decreased $90,000 during the year. 5. Administrative expenses include depreciation expense of $50,000. 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 $7,240,000

Cash Paid to Suppliers and Employees ($6,460,000)

Net Cash from Operating Activities $780,000

Step-by-step explanation:

Prepare a statement of cash flows` operating activities section as follows :

Cash flow from operating activities

Cash Receipts from Customers $7,240,000

Cash Paid to Suppliers and Employees ($6,460,000)

Net Cash from Operating Activities $780,000

Cash Receipts from Customers Calculations

Sales revenue $6,890,000

Add Decrease in Accounts Receivables $350,000

Cash Receipts from Customers $7,240,000

Cash Paid to Suppliers and Employees Calculations

Cost of goods sold $4,700,000

Add

Selling expenses $460,000

Administrative expenses $700,000

Less depreciation expense of $50,000

Decrease in Accounts Payable $300,000

Decrease in Accrued Expenses $90,000

Increase in Prepaid expenses $160,000

Cash Paid to Suppliers and Employees $6,460,000