Question

prepare statement of cash flow: Sales revenue $454,707 Sales discount $56,240 Sales return and allowance $5,687 Beginning inventory $251,890 Purchases $511,692 Ending inventory $628,122 Operating expenses, including depreciation of $46,500 $58,910 Income tax expense $27,280 Interest expense $4,730 Loss on disposal of plant assets $7,500

Additional data:
1.  New equipment costing $85,000 was purchased for cash during the year
2.  Old equipment having an original cost of $57,000 was sold for $1,500 cash
3.  Bonds matured and were paid off at face value for cash
4.  A cash dividend of $40,350 was declared and paid during the year

Answer 1

In calculating the cash flows statement from indirect method, we will start with the net income. We will add back the non cash item of depreciation & loss on sale of plant asset in it.

For net income, let us first find out the net sales and cost of sales as per below:

Net sales = Sales revenue - Sales discount - Sales return and allowance

Net sales = $454707 - $56240 - $5687 = $392780

Cost of sales = Beginning inventory + Purchases - Ending inventory

Cost of sales = $251890 + $511692 - $628122 = $135460

Income statement

Net Sales $392780

Less: Cost of sales ($135460)

Gross margin     $257320

Less: Operating expenses ($58910)

(including depreciation)

Less: Loss on disposal of plant assets ($7500)

Less: Interest expense ($4730)

Earnings before tax $186180

Less: Income tax ($27280)

Net income $158900

Statement of cash flows:

Net income $158900

Add: Depreciation $46500

Add: Loss on disposal of plant assets $7500

Cash from operating activities $212900

Net Cash flow $212900