Question

Teal Company’s income statement for the year ended December 31, 2017, contained the following condensed information.

Service revenue				$845,000
Operating expenses (excluding depreciation)		$620,000
Depreciation expense		61,000
Loss on sale of equipment		26,000		707,000
Income before income taxes				138,000
Income tax expense				41,000
Net income				$97,000

Teal’s balance sheet contained the following comparative data at December 31.

		2017		2016
Accounts receivable		$39,000		$56,000
Accounts payable		39,000		33,000
Income taxes payable		4,100		8,400

(Accounts payable pertains to operating expenses.)

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

Answer 1

Solution:

Computation of Cash collection from customers
Particulars	Amount
Beginning accounts receivables	$56,000.00
Add: Service Revenue for the period	$845,000.00
Less: Ending accounts receivables	$39,000.00
Cash received from customer	$862,000.00

Computation of Cash payment for operating expenses
Particulars	Amount
Beginning accounts payable	$33,000.00
Add: Operating expenses incurred	$620,000.00
Less: Ending accounts payable	$39,000.00
Cash paid for operating expenses	$614,000.00

Computation of Cash payment for Income Tax
Particulars	Amount
Beginning income tax payable	$8,400.00
Add: Income tax expense for the year	$41,000.00
Less: Ending income tax payable	$4,100.00
Cash paid for Income Tax	$45,300.00

Statement of Cash Flows (Partial) - Teal company
Particulars	Amount
Cash collection from customer	$862,000.00
Cash paid for operating expenses	-$614,000.00
Cash paid for income tax	-$45,300.00
Cash flow from operating activities	$202,700.00