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	$	780
Gain on sale of buildings		11		$	791
Expenses and loss:
Cost of goods sold	$	290
Salaries		118
Insurance		38
Depreciation		121
Interest expense		48
Loss on sale of machinery		12			627
Income before tax					164
Income tax expense					82
Net income				$	82

PARNELL COMPANY Selected Accounts from Comparative Balance Sheets December 31, 2018 and 2017 ($ in 000s)
	Year
		2018			2017		Change
Cash	$	132		$	102		$	30
Accounts receivable		322			218			104
Inventory		323			423			(100	)
Prepaid insurance		68			86			(18	)
Accounts payable		208			119			89
Salaries payable		106			95			11
Deferred income tax liability		64			54			10
Bond discount		186			202			(16	)

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)

Cash receipt from Customers = Sales - Accounts Receivable

Cash payments for merchandise = Cots of goods sold - Increase in Accounts payable - Decrease in Inventory

Cash payments to employees = Salaries expense - Increase in salaries payable

Cash payments for Insurance = Insurance expense - Decrease in Prepaid Insurance

Cash payments for Interest = Interest expense - Bond discount amortized

Cash payments for taxes = Income tax expense - Increase in deferred tax liability

2)