Question

Financial Statement Effects of Accounts Payable Transactions

Petroni Company engages in the following sequence of transactions every month:
1. Purchases $500 of inventory on credit.
2. Sells $500 of inventory for $640 on credit.
3. Pays other operating expenses of $125 in cash.
4. Collects $640 in cash from customers.
5. Pays supplier of inventory $500.

a. Create a monthly income statement and statement of operating cash flow (direct method) for four consecutive months.

Do not use negative signs with any of your answers below.

1	2	3	4
Income statement:
Revenue	$Answer	$Answer	$Answer	$Answer
Cost of goods sold	Answer	Answer	Answer	Answer
Operating expenses	Answer	Answer	Answer	Answer
Income	$Answer	$Answer	$Answer	$Answer
Operating cash flows
Receipts	$Answer	$Answer	$Answer	$Answer
Payments to suppliers	Answer	Answer	Answer	Answer
Payments for operating expenses	Answer	Answer	Answer	Answer
Net cash flow from operations	$Answer	$Answer	$Answer	$Answer

b. The CFO is disappointed with the cash flows from the business. They do not provide the support for investment and growth that she wants. She proposes delaying supplier payments by a month. That is, each month's inventory purchase will be paid for in the following month. How would this change the monthly income statements and operating cash flows in part a?

Do not use negative signs with any of your answers below.

1	2	3	4
Income statement:
Revenue	$Answer	$Answer	$Answer	$Answer
Cost of goods sold	Answer	Answer	Answer	Answer
Operating expenses	Answer	Answer	Answer	Answer
Income	$Answer	$Answer	$Answer	$Answer
Operating cash flows
Receipts	$Answer	$Answer	$Answer	$Answer
Payments to suppliers	Answer	Answer	Answer	Answer
Payments for operating expenses	Answer	Answer	Answer	Answer
Net cash flow from operations	$Answer	$Answer	$Answer	$Answer

Answer 1

(a)

Monthly income statement

	Month 1	Month 2	Month 3	Month4
Revenue	640	640	640	640
Cost of goods sold	500	500	500	500
Operating expenses	125	125	125	125
Income	15	15	15	15

Statement of operating cash flow

	Month1	Month 2	Month 3	Month 4
Operating cash flows
Receipts	640	640	640	640
Payments to suppliers	500	500	500	500
Payments for operating expenses	125	125	125	125
Net cash flow from operations	15	15	15	15

(b)

Monthly income statement

	Month 1	Month 2	Month 3	Month4
Revenue	640	640	640	640
Cost of goods sold	500	500	500	500
Operating expenses	125	125	125	125
Income	15	15	15	15

Statement of operating cash flow

	Month1	Month 2	Month 3	Month 4
Operating cash flows
Receipts	640	640	640	640
Payments to suppliers	500	500	500	500
Payments for operating expenses	125	125	125	125
Net cash flow from operations	15	15	15	15

CFO's decision will have no affect on income statement and operating cash flows since every month same amount of purchases are made.