Middle Horn Inc. Income Statement Year Ended December 31, 2014 Required: Prepare the operating...

Question:

Middle Horn Inc.

Income Statement

Year Ended December 31, 2014

Sales $6,500,000
Cost of Goods Sold $3,250,000
Gross Profit $3,650,000
Operating Expenses $1,500,000
Profit from Operations $2,050,000
Interest Expense $150,000
Profit before income taxes $400,000
Profit $1,500,000

Additional Information:

1. Operating expenses include $58,000 of depreciation expense and a $75,000 impairment loss on property, plant and equipment
2. Account receivable decreased by $110,000
3. Merchandise Inventory increased by $45,000
4. Prepaid expenses related to operating expenses increased by $65,000
5. Accounts Payable to supplier at merchandise decreased by $101,000
6. Accrued liabilities relate to operating expenses increases by $22,000
8. Income tax payable increased by $35,000

Required:

Prepare the operating activities section of the statement of cash flows using the Direct method.

Cash Flow from Operating Activities

The Cash Flow from Operating Activities includes the net income from the income statement, adjustments to net income, and changes in working capital. It refers to the amount of cash a company generates.it also elaborates on the sources and uses of cash regular business activities.

Answer and Explanation:

Particulars Amount ($)
Cash received from customers 6,610,000
Cash paid to suppliers 3,396,000
Cash paid for operating expense 1,410,000
Cash paid for interest 164,000
Cash paid for income tax 365,000
Net cash 1,275,000

{eq}\begin {align*} \text{Cash received from customers}&=\$6,500,000+\$110,000\\&=\$6,610,000\\\text{Cash paid to suppliers}&=\$3,250,000+\$45,000+\$101,000\\&=\$3,396,000\\\text{Cash paid for operating expense}&=\$1,500,000-\$58,000-\$75,000+\$65,000-\$22,000\\&=\$1,410,000\\\text{Cash paid for interest} &=\$150,000+\$14,000\\&=\$164,000\\\text{Cash paid for income tax}&=\$400,000-\$35,000\\&=\$365,000 \end{align*} {/eq}


Learn more about this topic:

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Operating Cash Flow: Definition & Examples

from Finance 101: Principles of Finance

Chapter 10 / Lesson 4
11K

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