Question

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				$	149.60
Cost of goods sold					(89.80	)
Gross margin					59.80
Salaries expense	$	19.60
Insurance expense		11.60
Depreciation expense		4.80
Interest expense		5.80			(41.80	)
Gains and losses:
Gain on sale of equipment					11.60
Loss on sale of land					(2.60	)
Income before tax					27.00
Income tax expense					(13.50	)
Net income				$	13.50

Reconciliation of Net Income to Net Cash Flows from Operating Activities
Net income	$	13.50
Adjustments for noncash effects:
Decrease in accounts receivable		4.80
Gain on sale of equipment		(11.60	)
Increase in inventory		(5.80	)
Increase in accounts payable		8.80
Increase in salaries payable		2.80
Depreciation expense		4.80
Decrease in bond discount		2.90
Decrease in prepaid insurance		1.80
Loss on sale of land		2.60
Increase in income tax payable		5.80
Net cash flows from operating activities	$	30.40

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.(If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50).)

2. Prepare the cash flows from operating activities section of the statement of cash flows (direct method).Enter your answers in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50). Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Solution 1:

Journal Entries ($ in millions)
S.no.	Particulars	Debit	Credit
a	Cash Dr	$154.40
	To Accounts receivables		$4.80
	To Sales		$149.60
	(To record record cash received from customers)
b	Cost of Goods sold Dr	$89.80
	Inventory Dr	$5.80
	To Accounts Payable		$8.80
	To Cash		$86.80
	(To record Cash paid to suppliers)
c	Salaries Expense Dr	$19.60
	To Salaries payable		$2.80
	To Cash		$16.80
	(To record Cash paid to employees for salaries)
d	Interest Expense Dr	$5.80
	To Discount on Bond Payable (Amortization of discount)		$2.90
	To Cash		$2.90
	(To record Cash paid for Interest)
e	Insurance ExpenseDr	$11.60
	To Prepaid Insurance		$1.80
	To Cash		$9.80
	(To record Cash paid for Insurance)
f	Income Tax ExpenseDr	$13.50
	To Income Tax Payable		$5.80
	To Cash		$7.70
	(To record Cash paid for Income Tax)

Solution 2:

Statement of Cash Flows (Partial)- (Direct method)
Particulars	Details	Amount
Cash Flow from Operating Activities:
Received from customers	$154.40
Paid to suppliers	-$86.80
Paid to Employees	-$16.80
Paid for Interest	-$2.90
Payment for Insurance	-$9.80
Payment for Income Taxes	-$7.70
Net Cash Provided by Operating Activites		$30.40