Question

Required:
Prepare the cash flows from operating activities section of Tiger’s 2021 statement of cash flows using the direct method. Assume that all purchases and sales of inventory are on account, and that there are no anticipated bad debts for accounts receivable.

 

E 4–20

 

Answer 1

The T-account analysis of the transactions related to operating cash flows is shown below. To derive the cash flows, the beginning and ending balances in the related assets and liabilities are inserted, together with the revenue and expense amounts from the income statements. In each balance sheet account, the remaining (plug) figure is the other half of the cash increases or decreases.

 

 

Based on the information in the T-accounts above, the operating activities section of the SCF for Tiger Enterprises would be as shown next.

 

               TIGER ENTERPRISES

          Statement of Cash Flows

For the Year Ended December 31, 2021

                  ($ in thousands)

 

Cash flows from operating activities:

          Cash received from customers (a)                            $ 7,080

          Cash paid for insurance (b)                                            (130)

          Cash paid for merchandise (c)                                    (3,460)

          Cash paid for general and administrative exp. (d)  (1,900)

          Cash paid for income taxes (e)                                      (550)

   Net cash flows from operating activities                                        $ 1,040

   Net cash flows from operating activities                                        $ 1,040