Question

Portions of the financial statements for Peach Computer are provided below.

PEACH COMPUTER Income Statement For the year ended December 31, 2021
Net sales				$	2,050,000
Expenses:
Cost of goods sold	$	1,150,000
Operating expenses		660,000
Depreciation expense		60,000
Income tax expense		50,000
Total expenses					1,920,000
Net income				$	130,000

PEACH COMPUTER Selected Balance Sheet Data December 31
	2021			2020			Increase (I) or Decrease (D)
Cash	$	112,000		$	90,000		$	22,000		(I)
Accounts receivable		46,000			54,000			8,000		(D)
Inventory		85,000			60,000			25,000		(I)
Prepaid rent		4,000			7,000			3,000		(D)
Accounts payable		55,000			42,000			13,000		(I)
Income tax payable		6,000			15,000			9,000		(D)

Required:

Prepare the operating activities section of the statement of cash flows for Peach Computer using the direct method. (List cash outflows and any decrease in cash as negative amounts.)

Answer 1

Solution:

Statement of Cash Flows (Direct Method)
For Year Ended December 31, 2021
Particulars	($ in Millions)
Cash Flows from operating activities:
Cash received from customers	$20,58,000
Cash paid to suppliers	-$11,62,000
Cash paid for operating expenses	-$6,57,000
Cash paid for income taxes	-$59,000
Cash Flows from operating activities	$1,80,000

Computation of cash received from customers
Particulars	Amount
Beginning accounts receivables	$54,000
Add: Sales	$20,50,000
Less: Ending accounts receivables	$46,000
Cash received from customers	$20,58,000
Computation of cash paid to Suppliers for inventory
Particulars	Amount
Cost of Goods Sold	$11,50,000
Add: Ending inventory	$85,000
Less: Beginning inventory	$60,000
Purchases made during the year	$11,75,000
Add: Opening accounts payable	$42,000
Less: Ending accounts payable	$55,000
Cash paid to supplier for inventory	$11,62,000
Computation of cash paid for operating expenses
Particulars	Amount
Operating expenses	$6,60,000
Add: Ending prepaid rent	$4,000
Less: Beginning prepaid rent	$7,000
Cash paid for operating expenses	$6,57,000

Computation of cash paid for Income Tax
Particulars	Amount
Income tax expense	$50,000
Add: Beginning income tax Payable	$15,000
Less: Ending income tax payable	$6,000
Cash paid for income tax	$59,000