Question

The income statement of Redman Inc. for the year ended December 31, 2020, reported the following condensed information:

         Service revenue $ 600,000

         Operating expenses   360,000

         Income from operations 240,000

         Income tax expense                                                             60,000

         Net income   $180,000

Redman's statement of financial position contained the following comparative data at December 31:

     2020                2019

         Accounts receivable $65,000 $40,000

         Accounts payable 40,000 55,000

         Income taxes payable 6,000 3,000

Redman has no depreciable assets. Accounts payable pertains to operating expenses. Prepare the operating activities section of the statement of cash flows using the direct method.

Answer 1

Working Notes:

1	Cash Receipts from Customers	($)
+	Net Sales	600,000
+	Accounts Receivable 31.12.2019	40,000
−	Accounts Receivable 31.12.2020	65,000
		575,000

2	Cash Payments to Suppliers	($)
+	Purchases	360,000
+	Accounts Payable 31.12.2019	55,000
−	Accounts Payable 31.12.2020	40,000
		375,000

3	Income Tax Payments	($)
+	Income Tax Payable 31.12.2019	3,000
−	Income Tax Payable 31.12.2020	6,000
+	Income Tax Expense	60,000
		57,000

Cash Flow Statement using Direct Method as on 31.12.2020 (Only operating activities section)

Operating Activities	($)
Cash Receipts from Customers	575,000
Cash Payments to Suppliers	375,000
Income Tax Payments	57,000
Net cash from operating activities	143,000