Question

The 2019 accounting records of Pape Transport reveal these transactions and events.
Payment of interest		$70,466		Payment of salaries and wages		$373,470
Cash sales		338,237		Depreciation expense - vehicles		112,746
Receipt of dividend revenue		126,839		Proceeds from sale of vehicles		5,721,849
Payment of income tax		84,559		Purchase of vehicles for cash		155,025
Profit		267,771		Loss on sale of vehicles		21,140
Payments for inventory		683,521		Payment of operating expenses		197,305
Payment for land		521,449		Retained earnings at the start of the year		507,500
Collection of accounts receivable		1,374,089		Retained earnings at the end of the year		531,100
Required
a) Prepare the cash flows from operating activities section for the year ended 31 December 2019 using the direct method.
b) How much was the payment of dividends?
c) During the year equipment was sold, and the company recorded a profit on sale of equipment in the income statement of $5,200.
This equipment cost $50,500 originally and had a carrying amount of $6,500 at the time of sale.
What were the proceeds from the sale of the equipment?

Answer 1

Answer: 1

Cash flows from operating activities section for the year ended 31 December 2019 using the direct method:

PAPE Transport
Cash flow from operating cash flow (Direct method)
Cash Sales	$             338,237
Collection of account receivable	$          1,374,089
Cash inflow	$          1,712,326
Payment for inventory	$           (683,521)
Payment of Salaries and wages	$           (373,470)
Payment of operating expense	$           (197,305)
Cash Outflow	$       (1,254,296)
Cash Flow from operating activites before income tax	$             458,030
Payment of Income tax	$                84,559
Cash Flow from operating activites after income tax	$             373,471

Note: Since we are making cash flow statement using direct method, Profit, Depreciation expense, loss of sale of vehicles have no use in preparing cash flow statement for operating activities.

Answer 2: We can find  payment of dividend amount by making statement considering, profit during the year, and retained earning opening and closing balance.

Calculation are as follows:

Particular	Amount
Retained earning at the beginning of Year	$             507,500
Add: Profit earned	$             267,771
Less: Retained Earning at the closing of the year	$           (531,100)
Dividend paid during the year	$             244,171

Note: We assume that profit figure given in the question is after considering income tax expense.

Answer c: We calculate proceeds from the sale of the equipment by adding carrying cost value and profit earned on sale of equipment.

Calculation are as follows:

Particular	Amount
Carrying Cost of Equipment	$                  6,500
Add: Profit earned	$                  5,200
Proceeds from sale of Equipment	$                11,700

Note: Since question no.3 specifically mentioned equipment cost and sale figures for the equipment, therefore we only consider this equipment and ignore equipment sale and loss figures mentioned in the above quesiton.