Question

The following schedule relates the income statement with cash flows from operating activities, derived by both the direct and indirect methods. The amounts for income statement elements are missing.

Cash Flows from Operating Activities
Income Statement				Indirect Method				Direct Method
				Net income	$	?
				Adjustments:
Sales	$	?		Decrease in accounts receivable		16		Cash received from customers	$	666
Cost of goods sold		?		Increase in inventory		(32	)
				Decrease in accounts payable		(45	)	Cash paid to suppliers		(467	)
Salaries expense		?		Increase in salaries payable		17		Cash paid to employees		(42	)
Depreciation expense		?		Depreciation expense		23		(Not reported—no cash effect)
Insurance expense		?		Decrease in prepaid insurance		24		Cash paid for insurance		(20	)
Loss on sale of land		?		Loss on sale of land		20		(Not reported—no cash effect)
Income tax expense		?		Increase in income tax payable		20		Cash paid for income taxes		(40	)
Net income	$	?		Net cash flows from operating activities	$	97		Net cash flows from operating activities	$	97

Required:
Deduce the missing amounts and prepare the income statement.

Answer 1

Particulars	Calculation	Amount($)
Sales	(480+260)	740
Cost of Goods Sold		(480)
Gross Profit	(59+23+44+20+60+54)	260
Salaries Expense	(17+42)	(59)
Depreciation Expense		(23)
Insurence Expense	(24+20)	(44)
Loss on Sale of Land		(20)
Income Tax Expense	(40+20)	(60)
Net Income	(97-20-20-24-23-17+45+32-16)	54

Cost of Good Sold :-

Cash paid to Supplier = $467

Purchase = Cash paid to Supplier + Increase in Accounts Payable

Purchase = $467 + $45

Purchase = $512

Cost of Good Sold = Purchase - Increase in Inventory

Cost of Good Sold = $512-$32

Cost of Good Sold = $480