Question

The income statement of Rodriquez Company is shown below:
	RODRIQUEZ COMPANY
	Income Statement
	For The Year Ended December 31, 2012
	Sales					$6,900,000
	Cost of goods sold
	Beginning inventory				$1,900,000
	Purchases				4,400,000
	Goods available for sale				6,300,000
	Ending inventory				1,600,000
	Cost of goods sold					4,700,000
	Gross profit					2,200,000
	Operating expenses
	Selling expenses				450,000
	Administrative expenses				700,000	1,150,000
	Net income					$1,050,000
Additional information:
1. Accounts receivable decreased			$310,000	during the year.
2. Prepaid expenses increased			$170,000	during the year.
3. Accounts payable to suppliers of merchandise decreased					$275,000	during the year.
4. Accrued expenses payable decreased			$120,000	during the year.
5. Administrative expenses include depreciation expense of					$60,000
Instructions:
Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2012, for Rodriquez Company, using the direct method.

Answer 1

Solution:

Computation of cash received from customers
Particulars	Amount
Sales	$6,900,000.00
Add: Decrease in receivables	$310,000.00
Cash received from customers	$7,210,000.00

Computation of cash paid for inventory
Particulars	Amount
Purchases made during the year	$4,400,000.00
Add: Decrease in accounts payable	$275,000.00
Cash paid to supplier for inventory	$4,675,000.00

Computation of cash paid for Operating Expenses
Particulars	Amount
Operating expenses	$1,150,000.00
Add: Increase in prepaid expenses	$170,000.00
Add: Decrease in accrued expenses payable	$120,000.00
Less: Depreciation	$60,000.00
Cash paid for Operating expenses	$1,380,000.00

Rodriquez Company
Statement of Cash Flows (Direct Method) (Partial)
For Year Ended December 31, 2012
Particulars	Amount
Cash Flows from operating activities:
Cash received from customers	$7,210,000.00
Less: Cash disbursement:
Cash paid to supplier for inventory	-$4,675,000.00
Cash paid for Operating expenses	-$1,380,000.00
Net Cash provided by operating activities	$1,155,000.00