Question

CHAPTER 21 (12.)

Portions of the financial statements for Parnell Company are provided below.

PARNELL COMPANY Income Statement For the Year Ended December 31, 2018 ($ in 000s)
Revenues and gains:
Sales	$	780
Gain on sale of buildings		11		$	791
Expenses and loss:
Cost of goods sold	$	290
Salaries		118
Insurance		38
Depreciation		121
Interest expense		48
Loss on sale of machinery		12			627
Income before tax					164
Income tax expense					82
Net income				$	82

PARNELL COMPANY Selected Accounts from Comparative Balance Sheets December 31, 2018 and 2017 ($ in 000s)
	Year
		2018			2017		Change
Cash	$	132		$	102		$	30
Accounts receivable		322			218			104
Inventory		323			423			(100	)
Prepaid insurance		68			86			(18	)
Accounts payable		208			119			89
Salaries payable		106			95			11
Deferred income tax liability		64			54			10
Bond discount		186			202			(16	)

Required:

1. Prepare the cash flows from operating activities section of the statement of cash flows for Parnell Company using the direct method.
2. Prepare the cash flows from operating activities section of the statement of cash flows for Parnell Company using the indirect method.

Answer 1

1.

Cash flows from operating activities section of the statement of cash flows for Parnell Company using the direct method.
Cash flows from operating activities
Cash receipts from customers	676.00	1
Cash paid to suppliers and employees etc	(228.00)	2
Cash generated from operations	448.00
Interest paid	(32.00)	(48-16) Bond discount
Tax Paid	(82.00)
Net cash from operating activities	334.00
1.Cash receipts from customers
Sales	780
Accounts receivable-Opening	218
Accounts receivable-Closing	-322
	676
2. Cash paid to suppliers and employees etc
Salaries(=118+95-106)	107
Insurance (=38+68-86)	20
Suppliers (=119+190-208)*	101
	228
*190= Inventory(423-323-290)

2. Cash flows from operating activities section of the statement of cash flows for Parnell Company using the indirect method.
CASH FLOW STATEMENT- INDIRECT METHOD
Cash flow from operating activities:
Net Income	82
Adjustments
Depreciation	121
Gain on sale of buildings	-11
Loss on sale of machinery	12
Interest-Bond Discount Amortized	16
Change in Working Capital
Increase in Accounts Receivable	-104
Decrease in Inventories	100
Decrease in Prepaid Insurance	18
Increase in Salaries Payable	11
Increase in Accounts Payable	89
Net Cash Provided by Operating activities (A)	334