Question

Use the following information for the Problems below.

[The following information applies to the questions displayed below.]

Lansing Company’s 2017 income statement and selected balance sheet data (for current assets and current liabilities) at December 31, 2016 and 2017, follow.

LANSING COMPANY Income Statement For Year Ended December 31, 2017
Sales revenue	$	97,200
Expenses
Cost of goods sold		42,000
Depreciation expense		12,000
Salaries expense		18,000
Rent expense		9,000
Insurance expense		3,800
Interest expense		3,600
Utilities expense		2,800
Net income	$	6,000

  

LANSING COMPANY Selected Balance Sheet Accounts
At December 31	2017			2016
Accounts receivable	$	5,600		$	5,800
Inventory		1,980			1,540
Accounts payable		4,400			4,600
Salaries payable		880			700
Utilities payable		220			160
Prepaid insurance		260			280
Prepaid rent		220			180

Problem 12-2AB Direct: Computing cash flows from operations LO P5

Required:
Prepare the cash flows from operating activities section only of the company’s 2017 statement of cash flows using the direct method. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Under the direct method, before calculating net cash flows from operating activities, we will first calculate the components of operating activities section. We will analyse the previous year and current year figures to find out the increase or decrease in activity / transaction as per below:

1. Cash received from customers:

Description	Amount
Sales revenue	97200
Add: Decrease in receivables	200
Cash received from customers	97400

2. Cash paid to suppliers:

Description	Amount
Cost of goods sold	42000
Add: Increase in inventory	440
Add: Decrease in accounts payable	200
Cash paid to suppliers	42640

3. Salaries paid:

Salaries expense $18000

Less:Increase in salaries payable -$180

Salaries paid $17820

4. Utilities cash payments:

Utilities expense $2800

Less: Increase in utilities payable -$60

Cash paid for utilities expense $2740

5. Operating cash payments:

Description	Amount
Rent expense	9000
Insurance expense	3800
Interest expense	3600
Less: Decrease in prepaid insurance	-20
Add: Increase in prepaid rent	40
Cash paid for operating expenses	16420

Now, we will prepare the cash flows from operating activities section:

Cash flows from operating activities:

Description	Amount
Cash flows from operating activities:
Cash received from customers	97400
Less: Cash paid to suppliers	-42640
Less: Salaries paid	-17820
Less: Utilities paid	-2740
Less: Operating expenses paid	-16420
Net cash flows from operating activities	17780