Question

Information was taken from adjusted trial balance of King Company:

Account Debit. Credit

Sales. $,295000(credit)

Interest Revenue $88,000(credit)

Cost of Goods Sold $20,000

Salary Expense $45,000

Interest Expense $60,000

Advertising expense $30,000

Income Tax Expense $88,500

Net income 136,500

In addition, the following changes occurred during the year:

Accounts Receivable $10,000 credit

Inventory $35,000 debit

Accounts Payable $12,000 debit

Salary Payable $23,000 credit

Interest Payable 19,000 credit

Using the direct & Indirect method, prepare the cash flows from operating activities section.

Answer 1

Cash Flow Operating Activities - Indirect Method
Net Income		136,500
Adjustment to net income to net cash
provided by operating activities
Decrease in Accounts Receivable	10,000
Increase in Inventories	(35,000)
Decrease in Accounts Payable	(12,000)
Increase in Salary Payable	23,000
Increase in Interest Payable	19,000	5,000
		141,500

Cash Flow Operating Activities - Direct Method
Cash Received from Customers	305,000
Interest and Dividend Received	88,000	393,000
Cash Paid to suppliers and employees	(119,000)
Interest Paid	(41,000)
Income Tax Paid	(88,500)	(248,500)
Net Cash Provided Operating Activities		144,500

Explanation:

Cash Received From Customer = Net Sale + Decrease in Accounts Receivable

Interest and dividend Paid = Interest Revenue

Cash Paid to Suppliers and Employees = Cash paid to suppliers + Cash paid operating activities

Cash Paid Suppliers = Cost of Goods Sold + Increase in inevtory + Decrease in Accounts Payable

Cash Paid to operating activities = Salary + Adveratisemnet - Increase in Salary Payable

Interst Paid = Interest expense - Increase in interest payable