Question

Question 4.4 (Total: 22 marks for completed statement; -2 marks per error)

Drax Corporation has the following financial statements:

Drax Corporation

Income Statement

For the Year Ended December 31, 2020

Net sales

$165,000

Cost of goods sold

97,500

Gross profit

67,500

Operating expenses

27,500

Income from operations

40,000

Interest expense

3,500

Income before income taxes

36,500

Income taxes

11,000

Net income

$ 25,500

Drax Corporation

Comparative Statement of Financial Position

As at December 31

Cash

$15,000

$9,750

Accounts receivable

11,750

8,750

Inventories

16,500

11,750

Prepaid insurance

2,500

2,000

Equipment

25,500

33,500

Accumulated depreciation—equipment

(16,250)

(17,750)

Total assets

$55,000

$48,000

Accounts payable

$5,000

$6,750

Wages payable

2,000

2,000

Income taxes payable

3,000

1,000

Long-term note payable

0

8,750

Common shares

15,000

15,000

Retained earnings

30,000

14,500

Total liabilities and shareholders’ equity

$55,000

$48,000

Additional information:

· Equipment that cost $8,000 was sold for the carrying amount of $3,750

· Dividends declared and paid were $10,000.

Required

1. Prepare the operating activities section for the statement of cash flows using the direct method

Answer 1

Drax Corporation				Workings:
Partial Statement of Cash Flow				Cash collected from customers
For the Year Ended December 31, 2020				Beginning AR	11,750
Cash Flow from Operating Activities				+ Sales	165,000
Cash received from customers	168,000			- Ending AR	(8,750)
Cash paid to suppliers and employees	(118,000)				168,000
Interest paid	(3,500)
Income tax paid	(13,000)			Purchase from suppliers
Net cash flow from operating activities		33,500		- Beginning Inventory	(16,500)
				+ cost of goods sold	97,500
				+ Ending Inventory	11,750
					92,750
				Cash paid for suppliers
				Beginning AP	5,000
				+ purchase from suppliers	92,750
				- Ending AP	(6,750)
					91,000
				Cash paid for operating expenses:
				- Beginning Prepaid Insurance	(2,500)
				+ Ending Prepaid Insurance	2,000
				+ Beginning wages payable	2,000
				+ Operating expenses	27,500
				- Ending wages payable	(2,000)
					27,000
				Cash paid for income tax expenses:
				+ Beginning income taxes payable	3,000
				+ Income taxes expenses	11,000
				- Ending income taxes payable	(1,000)
					13,000