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				$	149.80
Cost of goods sold					(89.90	)
Gross margin					59.90
Salaries expense	$	19.80
Insurance expense		11.80
Depreciation expense		4.90
Interest expense		5.90			(42.40	)
Gains and losses:
Gain on sale of equipment					11.80
Loss on sale of land					(2.80	)
Income before tax					26.50
Income tax expense					(13.25	)
Net income				$	13.25

Reconciliation of Net Income to Net Cash Flows from Operating Activities
Net income	$	13.25
Adjustments for noncash effects:
Decrease in accounts receivable		4.90
Gain on sale of equipment		(11.80	)
Increase in inventory		(5.90	)
Increase in accounts payable		8.90
Increase in salaries payable		2.90
Depreciation expense		4.90
Decrease in bond discount		2.95
Decrease in prepaid insurance		1.90
Loss on sale of land		2.80
Increase in income tax payable		5.90
Net cash flows from operating activities	$	30.70

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.

-Record the summary journal entry showing cash received from customers during the reporting period

-Record the summary journal entry showing cash paid to suppliers of goods during the reporting period

-Record the summary journal entry showing cash paid to employees during the reporting period

-Record the summary journal entry showing cash paid for interest during the reporting period

-Record the summary journal entry showing cash paid for insurance during the reporting period

-Record the summary journal entry showing cash paid for income taxes during the reporting period

2. Prepare the cash flows from operating activities section of the statement of cash flows (direct method).

	Cash Flows from Operating Activities: Net cash flows from operating activities $

Answer 1

Event	general journal	debit	credit
A.	cash	154.70
	Accounts receivable		4.90
	Sales revenue		149.80
	(cash received from customers)
B.	cost of goods sold	89.90
	Inventory	5.90
	Accounts payable		8.90
	Cash		86.90
	(cash paid to suppliers)
C.	Salaries expense	19.80
	Salaries payable		2.90
	Cash		16.90
	(cash paid to employees)
D.	interest expense	5.90
	Discount on bonds payable		2.95
	Cash		2.95
	(cash paid for interest)
E.	insurance expense	11.80
	Prepaid insurance		1.90
	Cash		9.90
	(cash paid for insurance)
F.	income tax expense	13.25
	Income tax payable		5.90
	Cash		7.35

(cash paid for income tax)

Part 2

Cash flows from operating activities
Cash received from customers	154.70
Cash paid to suppliers	(86.90)
Cash paid to employees	(16.90)
Cash paid for interest	(2.95)
Cash paid for insurance	(9.90)
Cash paid for income taxes	(7.35)
Net cash flows from operating activities	30.70