Question

Exercise 23-5 Sarasota Company’s income statement for the year ended December 31, 2017, contained the following condensed information. Service revenue $831,000 Operating expenses (excluding depreciation) $620,000 Depreciation expense 60,000 Loss on sale of equipment 26,000 706,000 Income before income taxes 125,000 Income tax expense 40,000 Net income $85,000 Sarasota’s balance sheet contained the following comparative data at December 31. 2017 2016 Accounts receivable $37,000 $52,000 Accounts payable 41,000 31,000 Income taxes payable 4,100 8,500 (Accounts payable pertains to operating expenses.) Prepare the operating activities section of the statement of cash flows using the direct method.

Answer 1

Solution:

Computation of cash received from customers
Particulars	Amount
Beginning accounts receivables	$52,000.00
Add: Service revenue	$831,000.00
Less: Ending accounts receivables	$37,000.00
Cash received from customers	$846,000.00

Computation of cash paid for Operating expenses
Particulars	Amount
Opening accounts payable	$31,000.00
Add: Operating Expenses	$620,000.00
Less: Ending accounts payable	$41,000.00
Cash paid for Operating expenses	$610,000.00

Computation of cash paid for Income Tax
Particulars	Amount
Opening Income tax payable	$8,500.00
Add: Income Tax Expense	$40,000.00
Less: Ending Income tax payable	$4,100.00
Cash paid for Income Tax	$44,400.00

SARASOTA Company
Statement of Cash Flows (Partial) - Direct Method
For Year Ended December 31, 2017
Particulars	Details	Amount
Cash Flows from operating activities:
Cash received from customers	$846,000.00
Cash paid for Operating Expenses	-$610,000.00
Cash paid for income tax	-$44,400.00
Net Cash provided by operating activities		$191,600.00