Question

Portions of the financial statements for Parnell Company are provided below.

PARNELL COMPANY Income Statement For the Year Ended December 31, 2018 ($ in 000s)
Revenues and gains:
Sales	$	740
Gain on sale of buildings		12		$	752
Expenses and loss:
Cost of goods sold	$	270
Salaries		114
Insurance		34
Depreciation		117
Interest expense		44
Loss on sale of machinery		11			590
Income before tax					162
Income tax expense					81
Net income				$	81

PARNELL COMPANY Selected Accounts from Comparative Balance Sheets December 31, 2018 and 2017 ($ in 000s)
	Year
		2018			2017		Change
Cash	$	128		$	106		$	22
Accounts receivable		318			222			96
Inventory		327			419			(92	)
Prepaid insurance		67			82			(15	)
Accounts payable		204			123			81
Salaries payable		114			99			15
Deferred income tax liability		72			58			14
Bond discount		178			206			(28	)

Required:

1. Prepare the cash flows from operating activities section of the statement of cash flows for Parnell Company using the direct method.
2. Prepare the cash flows from operating activities section of the statement of cash flows for Parnell Company using the indirect method.

Answer 1

1. Direct Method

PARNELL COMPANY
Statement of Cash Flows-Indirect Method
For the year ended December 31, 2018
Particulars	Amount ($ in '000)
Cash Flows from Operating Activities
Cash received from Accounts receivable	644.00
Cash Paid to Accounts Payable	-97.00
Cash Paid for Salary	-99.00
Cash Paid for Income Tax	-67.00
Cash Paid for Insurance	-19.00
Net Cash flow used for operating activities	362.00

2. Indirect Method

PARNELL COMPANY
Statement of Cash Flows-Indirect Method
For the year ended December 31, 2018
Particulars	Amount ($ IN '000)
Cash Flows from Operating Activities
Net Income	81.00
Adjustments to reconcile net loss to net cash flow from operating activites
Add	Depreciation	117.00
Less	Gain on Sale of buildings	-12.00
Add	Interest	44.00
Add	Loss on Sale of machinery	11.00
Changes in Current Assets & liabilities
Less	Increase in Accounts Receivable	-96.00
Add	Decrease in Inventory	92.00
Add	Decrease in Prepaid Insurance	15.00
Add	Increase in Accounts Payable	81.00
Add	Increase in Salary Payable	15.00
Add	Increase in Deferred Income Tax Liability	14.00
Net Cash flow used for operating activities	362.00