Question

(SCF—Direct Method)

(LO 2, 3) Los Lobos Corp. uses the direct method to prepare its statement of cash flows. Los Lobos's trial balances at December 31, 2017 and 2016, are as follows.

	December 31
	2017	2016
Debits
Cash	$?35,000	$?32,000
Accounts receivable	33,000	30,000
Inventory	31,000	47,000
Property, plant, and equipment	100,000	95,000
Unamortized bond discount	4,500	5,000
Cost of goods sold	250,000	380,000
Selling expenses	141,500	172,000
General and administrative expenses	137,000	151,300
Interest expense	4,300	2,600
Income tax expense	??20,400	??61,200
	$756,700	$976,100

	December 31
	2017	2016
Credits
Allowance for doubtful accounts	$??1,300	$??1,100
Accumulated depreciation—plant assets	16,500	15,000
Accounts payable	25,000	15,500
Income taxes payable	21,000	29,100
Deferred tax liability	5,300	4,600
8% callable bonds payable	45,000	20,000
Common stock	50,000	40,000
Paid-in capital in excess of par	9,100	7,500
Retained earnings	44,700	64,600
Sales revenue	?538,800	?778,700
	$756,700	$976,100

Additional information:

1.Los Lobos purchased $5,000 in equipment during 2017.

2.Los Lobos allocated one-third of its depreciation expense to selling expenses and the remainder to general and administrative expenses.

3.Bad debt expense for 2017 was $5,000, and write-offs of uncollectible accounts totaled $4,800.

Instructions

Determine what amounts Los Lobos should report in its statement of cash flows for the year ended December 31, 2017, for the following items.

(a)  

Cash collected from customers.

(b)  

Cash paid to suppliers.

(c)  

Cash paid for interest.

(d)  

Cash paid for income taxes.

(e)  

Cash paid for selling expenses.

Answer 1

Solution:-

Sr. No.	Particulars	Amount	Explanation
(a)	Cash collected from customers	$531,000	1
(b)	Cash paid to suppliers	$224,500	2
(c)	Cash paid for interest	$3,800	3
(d)	Cash paid for income taxes	$27,800	4
(e)	Cash paid for selling expenses	$136,000	5

Explanation 1:-

Particulars	Amount
Sales Revenue	538,800
Deduct: Increase in accounts receivable, net of write-offs [$33,000 – ($30,000 – $4,800)]	7,800
Cash collected from customers	531,000

Explanation 2:-

Particulars	Amount
Cost of goods sold	250,000
Deduct: Decrease in inventory ($47,000 – $31,000)	16,000
Purchases	234,000
Deduct: Increase in accounts payable ($25,000 – $15,500)	9,500
Cash payments to suppliers	$224,500

Explanation 3:-

Particulars	Amount
Interest expense	4,300
Deduct: Decrease in unamortized bond discount ($5,000 – $4,500)	500
Cash paid for interest	3,800

Explanation 4:-

Particulars	Amount
Income tax expense	20,400
Add: Decrease in income taxes payable ($29,100 – $21,000)	8,100
Deduct: Increase in deferred tax liability ($5,300 – $4,600)	700
Cash paid for income taxes	27,800

Explanation 5:-

Particulars	Amount
Selling expenses	141,500
Deduct: Depreciation ($1,500* x 1/3)	500
Bad debts expense	5,000
Cash paid for selling expenses	136,000