Question

Exercise 16-16B Direct: Cash flows from operating activities LO P5 The following income statement and information about changes in noncash current assets and current liabilities are reported. SONAD COMPANY Income Statement For Year Ended December 31, 2017 Sales $ 1,828,000 Cost of goods sold 991,000 Gross profit 837,000 Operating expenses Salaries expense $ 245,535 Depreciation expense 44,200 Rent expense 49,600 Amortization expenses—Patents 4,200 Utilities expense 18,125 361,660 475,340 Gain on sale of equipment 6,200 Net income $ 481,540 Changes in current asset and current liability accounts for the year that relate to operations follow. Accounts receivable $ 30,500 increase Accounts payable $ 12,500 decrease Inventory 25,000 increase Salaries payable 3,500 decrease Use the direct method to prepare only the cash provided or used by operating activities section of the statement of cash flows for this company. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Ans.	SONAD COMPANY
	Statement of Cash Flows (Partial)
	Particulars	Amount
	Cash flows from operating activities:
	Cash collection from customer	$1,797,500
	Less: Cash payments:
	Cash paid for merchandise purchase	-$1,028,500
	Cash paid for salaries expenses	-$249,035
	Cash paid for rent expense	-$49,600
	Cash paid for utilities expense	-$18,125
	Total cash paid to suppliers and employees	-$1,345,260
	Net cash generated from operating activities	$452,240
	*WORKING NOTES :
	*Calculation of Cash received from customers:
	Particulars	Amount
	Sales	$1,828,000
	Less: Increase in accounts receivable	-30500
	Cash received from customer	$1,797,500
	*Calculations of Cash paid for merchandise purchased :
	Particulars	Amount
	Cost of goods sold	$991,000
	Add : Increase in inventory	$25,000
	Purchase during 2017	$1,016,000
	Add : Decrease in accounts payable	$12,500
	Cash paid for merchandise purchased	$1,028,500
	*Calculation of cash paid for salaries expenses:
	Salaries expense	$245,535
	Add : Decrease in salaries payable	$3,500
	Cash payment for salaries expenses	$249,035
	*Depreciation and amortization are non cash expenses so these are is not included
	in the calculation of cash flows.