Question

In: Accounting

The income statement and a schedule reconciling cash flows from operating activities to net income are...

The income statement and a schedule reconciling cash flows from operating activities to net income are provided below ($ in millions) for Mike Roe Computers.

MIKE ROE COMPUTERS
Income Statement
For the Year Ended December 31, 2018
Sales $ 148.40
Cost of goods sold (89.20 )
Gross margin 59.20
Salaries expense $ 18.40
Insurance expense 11.40
Depreciation expense 4.20
Interest expense 5.20 (39.20 )
Gains and losses:
Gain on sale of equipment 10.40
Loss on sale of land (1.40 )
Income before tax 29.00
Income tax expense (14.50 )
Net income $ 14.50
Reconciliation of Net Income
to Net Cash Flows
from Operating Activities
Net income $ 14.50
Adjustments for noncash effects:
Decrease in accounts receivable 4.20
Gain on sale of equipment (10.40 )
Increase in inventory (5.20 )
Increase in accounts payable 8.20
Increase in salaries payable 2.20
Depreciation expense 4.20
Decrease in bond discount 2.60
Decrease in prepaid insurance 1.20
Loss on sale of land 1.40
Increase in income tax payable 5.20
Net cash flows from operating activities $ 28.10


Required:
1. Provide the summary journal entry which shows the cash flow for each of the following for Mike Roe Computers during the reporting period: received from customers, paid to suppliers, paid to employees, paid for interest, paid for insurance, paid for income taxes.
2. Prepare the cash flows from operating activities section of the statement of cash flows (direct method).

Solutions

Expert Solution

SOLUTION

A. Journal entries-

S.No. Account titles and Explanation Debit ($) Credit ($)
1. Cash (received from customers) 152.60
Accounts Receivable 4.20
Sales Revenue 148.40
2. Cost of Goods Sold 89.20
Inventory 5.20
Accounts Payable 8.20
  Cash (paid to suppliers of goods) 86.20
3. Salaries Expense 18.40
  Salaries Payable 2.20
  Cash (paid to employees) 16.20
4. Interest Expense 5.20
Discount on Bonds Payable 2.60
Cash (paid for interest) 2.60
5. Insurance Expense 11.40
Prepaid Insurance 1.20
Cash (paid for insurance) 10.20
6. Income Tax Expense 14.50
Income Tax Payable 5.20
Cash (paid for income taxes) 9.30

(B) Cash flows-

Amount ($)
Cash Flows from Operating Activities:
Cash received from customers 152.60
Cash paid to suppliers (86.20)
Cash paid to employees (16.20)
Cash paid for interest (2.60)
Cash paid for insurance (10.20)
Cash paid for income taxes (9.30)
Net Cash Flows from Operating Activities 28.10

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