Question

Exercise 21-23 Cash flows from operating activities (direct method) [LO21-3]

Portions of the financial statements for Myriad Products are provided below.

MYRIAD PRODUCTS COMPANY Income Statement For the Year Ended December 31, 2018 ($ in millions)
Sales					$	620
Cost of goods sold						217
Gross margin						403
Salaries expense	$	85
Depreciation expense		72
Patent amortization expense		5
Interest expense		12
Loss on sale of land		3				177
Income before taxes						226
Income tax expense						113
Net Income					$	113

MYRIAD PRODUCTS COMPANY Selected Accounts from Comparative Balance Sheets December 31, 2018 and 2017 ($ in millions)
	Year
	2018			2017			Change
Cash	$	108		$	104		$	4
Accounts receivable		224			238			(14	)
Inventory		442			454			(12	)
Accounts payable		150			142			8
Salaries payable		82			90			(8	)
Interest payable		31			24			7
Income taxes payable		21			14			7

Required:
Prepare the cash flows from operating activities section of the statement of cash flows for Myriad Products Company using the direct method. (Amounts to be deducted should be indicated with a minus sign. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

Answer 1

Solution:

Computation of cash received from customers
Particulars	Amount
Beginning accounts receivables	$238
Add: Sales	$620
Less: Ending accounts receivables	$224
Cash received from customers	$634

Computation of cash paid to Suppliers for inventory
Particulars	Amount
Cost of Goods Sold	$217
Add: Ending inventory	$442
Less: Beginning inventory	$454
Purchases made during the year	$205
Add: Opening accounts payable	$142
Less: Ending accounts payable	$150
Cash paid to supplier for inventory	$197

Computation of cash paid to employees
Particulars	Amount
Salaries Expense	$85
Add: Beginning Salaries Payable	$90
Less: Ending Salaries Payable	$82
Cash paid to employees	$93

Computation of cash paid for Interest
Particulars	Amount
Interest expense	$12
Add: Beginning interest Payable	$24
Less: Ending interest payable	$31
Cash paid for interest	$5

Computation of cash paid for Income Tax
Particulars	Amount
Income tax expense	$113
Add: Beginning income tax Payable	$14
Less: Ending income tax payable	$21
Cash paid for income tax	$106

Myriad Products Company
Statement of Cash Flows (Direct Method)
For Year Ended December 31, 2018
Particulars	($ in Millions)
Cash Flows from operating activities:
Cash received from customers	$634
Cash paid to suppliers	-$197
Cash paid to employees	-$93
Cash paid for interest	-$5
Cash paid for income taxes	-$106
Net Cash provided by operating activities	$233