Question

Green Brands, Inc. (GBI) presents its statement of cash flows using the indirect method. The following accounts and corresponding balances were drawn from GBI’s 2017 and 2016 year-end balance sheets:

Account Title 2017 2016 Accounts receivable $ 48,000 $ 52,000 Merchandise inventory 78,000 72,000 Prepaid insurance 24,000 32,000 Accounts payable 31,000 28,000 Salaries payable 8,200 7,800 Unearned service revenue 2,400 3,600

The 2017 income statement is shown below: Income Statement Sales $ 720,000 Cost of goods sold (398,000 ) Gross margin 322,000 Service revenue 6,000 Insurance expense (36,000 ) Salaries expense (195,000 ) Depreciation expense (12,000 ) Operating income 85,000 Gain on sale of equipment 4,500 Net income $ 89,500

Required Prepare the operating activities section of the statement of cash flows using the direct method. Prepare the operating activities section of the statement of cash flows using the indirect method.

Answer 1

Req Aa:
Cashflows from Operating Activities (Direct method)
Cash received from Accounts receivable(720000+52000-48000)						724000
Cash Paid to Accounts payable						-401,000
Cash received from Service revenue (6000+2400-3600)						4,800
Payment for Insurance (36000+24000-32000)						-28,000
payment for salaries (195000+7800-8200)						-194,600
Net cash provided from Operating Activities						105,200
Note: cash paid to Accounts payable:
COGS			398000
Add: Ending Inventory			78000
less: beginning Inventory			72000
Purchases			404000
Add: Beginning Accounts payable			28,000.00
less: Ending Accounts payable			31,000
Amount paid			401000
Req b:
Cash flows from Operating Activities (indirect method)
Net Income for the year						89500
Adjustment to be made for reconciling with cash flows
Depreciation expense						12000
Gain on sale of equipment						-4500
Decrease in Accounts receivable			(52000-48000)			4000
Increase in Inventory (78000-72000)						-6000
Decrease in prepaid insurance (24000-32000)						8000
Increase in Accounts payable						3000
Increase in salaries payable						400
Decrease in unearned service revenue						-1200
Net cash provided from operating activites						105200