Question

The income statement and a schedule reconciling cash flows from operating activities to net income are provided below ($ in millions) for Mike Roe Computers.

MIKE ROE COMPUTERS

Income Statement For the Year Ended December 31, 2018

Sales $ 148.00

Cost of goods sold (89.00 )

Gross margin 59.00

Salaries expense $ 18.00

Insurance expense 11.00

Depreciation expense 4.00

Interest expense 5.30 (38.30 )

Gains and losses:

Gain on sale of equipment 10.00

Loss on sale of land (1.00 )

Income before tax 29.70

Income tax expense (14.85 )

Net income $ 14.85

Reconciliation of Net Income to Net Cash Flows from Operating Activities

Net income $ 14.85

Adjustments for noncash effects: Decrease in accounts receivable 5.20

Gain on sale of equipment (10.00 )

Increase in inventory (5.00 )

Increase in accounts payable 8.00

Increase in salaries payable 2.00

Depreciation expense 4.00

Decrease in bond discount 2.65

Decrease in prepaid insurance 1.00

Loss on sale of land 1.00

Increase in income tax payable 5.00

Net cash flows from operating activities $ 28.70

Required:

1. Provide the summary journal entry which shows the cash flow for each of the following for Mike Roe Computers during the reporting period: received from customers, paid to suppliers, paid to employees, paid for interest, paid for insurance, paid for income taxes.

2. Prepare the cash flows from operating activities section of the statement of cash flows (direct method).

Answer 1

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Event	Account	Debit	Credit
a	Cash	153.2
	Accounts Receivable		5.2
	Sales Revenue		148
b	Cost of Goods Sold	89
	Inventory	5
	Accounts Payable		8
	Cash		86
c	Salaries Expense	18
	Salaries Payable		2
	Cash		16
d	Interest Expense	5.3
	Discount on Bond Payable		2.65
	Cash		2.65
e	Insurance Expense	11
	Prepaid Insurance		1
	Cash		10
f	Income Tax Expense	14.85
	Income Tax Payable		5
	Cash		9.85
cash flows from operating activities section
	Cash Received from Customers	153.2
	Cash paid to Suppliers	-86
	Cash Paid to Employees	-16
	Cash paid for Interest	-2.65
	Cash paid for insurance	-10
	Cash paid for income tax	-9.85
	Net Cash flor from operating activities	28.7