Question

Podracer Productions provides the following income statement for the year ended December 31, 2017.

Income Statement
Sales	$1,530,600
Interest revenue	17,250
Cost of goods sold	(895,400)
General expenses	(255,400)
Depreciation expense	(23,500)
Salaries expense	(114,300)
Interest expense	(12,500)
Income tax expense	(85,500)
Loss on sale of equipment	(9,500)
Net income	$   151,750

In addition, Podracer provides the following balance sheet information

	Dec 31, 2017	Dec. 31, 2016
Accounts Receivable	$250,400	$225,400
Interest Receivable	2,100	2,250
Inventory	74,300	59,550
Prepaid General Expenses	17,600	14,000
Account Payable	39,500	46,300
Accrued General Expenses	19,500	21,750
Interest Payable	900	1,100
Income Tax Payable	11,500	9,750
Salaries Payable	9,850	5,400

Prepare the operating Activities section of the statement of cash flows using the direct method

Answer 1

Solution: Operating Activities section of the statement of cash flows:

Particulars	Amount ($)
sales	1,505,600
Less:
Payment to creditors	916,950
General expenses paid	259,000
Salary Paid	109,850
Cash profit	219,800
Less: Income tax paid	83,750
Cash profit after tax	136,050

Workings:

Cash Sales

Particulars	Amount
Sales	$1,530,600
Add: Opening Accounts receivable	$225,400
Less: Closing Accounts receivable	$250,400
Cash sales	$1,505,600

Purchases and payment to creditors:

Particulars	Amount($)
Cost of goods sold	895,400
Add: Closing Inventory	74,300
Less: Opening Inventory	59,550
Purchases	910,150
Add: Opening Accounts payable	46,300
Less: Closing Accounts payable	39,500
Payment to creditors	916,950

Prepaid General Expenses = 255,400 - 14,000 + 17,600 = 259,000

Salary Payable = 114,300 + 5,400 - 9,850 = 109,850

Income tax = 85,500 + 9,750 - 11,500 = 83,750

Interest paid and received for companies other than financing companies will be treated as financing and investing activities respectively.