Question

1. Prepare a schedule for the calculation of cash generated from operating activities for Kennington Company for the year ended December 31, 20-2.

2. Prepare a partial statement of cash flows for Kennington Company reporting cash from operating activities under the direct method for the year ended December 31, 20-2. Use a minus to indicate any decreases in cash or cash outflows.

Schedule for Calculation of Cash Generated From Operating Activities

Kennington Company's condensed income statement for the year ended December 31, 20-2, was as follows:

Net sales	$800,000
Cost of goods sold	475,000
Gross profit	$325,000
Operating expenses	148,000
Income before taxes	$177,000
Income tax expense	62,000
Net income	$115,000

Additional information obtained from Kennington's comparative balance sheet as of December 31, 20-2 and 20-1, was as follows:

	20-2		20-1
Cash		$75,000		$20,000
Accounts receivable		50,000		75,000
Merchandise inventory		70,000		110,000
Accounts payable		25,000		50,000

1. Prepare a schedule for the calculation of cash generated from operating activities for Kennington Company for the year ended December 31, 20-2.

Kennington Company
Schedule for the Calculation of Cash Generated from Operating Activities
For Year Ended December 31, 20-2
	Income Statement	Additions	Deductions	Cash Flows
Net sales	$800,000	$		$
Cost of goods sold	475,000		$
Gross profit	$325,000			$
Operating expenses	148,000
Income before taxes	$177,000			$
Income tax expense	62,000
Net income	$115,000			$

2. Prepare a partial statement of cash flows for Kennington Company reporting cash from operating activities under the direct method for the year ended December 31, 20-2. Use a minus to indicate any decreases in cash or cash outflows.

Kennington Company
Statement of Cash Flows (Partial)
For Year Ended December 31, 20-2
Cash flows from operating activities:
Cash received from customers		$
Cash paid for merchandise	$
Cash paid for operating expenses
Cash paid for income taxes
Total cash disbursed for operating activities
Net cash provided by operating activities		$

Answer 1

1	Kennington Company
	Schedule for the Calculation of Cash Generated from Operating Activities
	For Year Ended December 31, 20-2
		Income Statement	Additions	Deductions	Cash Flows
	Net sales	800,000	25,000		825,000
	Cost of goods sold	475,000		15,000	460,000
	Gross profit	325,000			365,000
	Operating expenses	148,000			148,000
	Income before taxes	177,000			217,000
	Income tax expense	62,000			62,000
	Net income	115,000			155,000
2	Kennington Company
	Statement of Cash Flows (Partial)
	For Year Ended December 31, 20-2
	Cash flows from operating activities:
	Cash received from customers		825,000
	Cash paid for merchandise	(460,000)
	Cash paid for operating expenses	(148,000)
	Cash paid for income taxes	(62,000)
	Total cash disbursed for operating activities		(670,000)
	Net cash provided by operating activities		155,000
	Working
	Cash collected from customers
	Beginning AR	75,000
	+ Sales	800,000
	- Ending AR	(50,000)
		825,000
	Purchase from suppliers
	- Beginning Inventory	(110,000)
	+ cost of goods sold	475,000
	+ Ending Inventory	70,000
		435,000
	Cash paid for suppliers
	Beginning AP	50,000
	+ purchase from suppliers	435,000
	- Ending AP	(25,000)
		460,000