Question

Portions of the financial statements for Myriad Products are provided below.

MYRIAD PRODUCTS COMPANY Income Statement For the Year Ended December 31, 2018 ($ in millions)
Sales					$	780
Cost of goods sold						273
Gross margin						507
Salaries expense	$	120
Depreciation expense		86
Patent amortization expense		5
Interest expense		26
Loss on sale of land		4				241
Income before taxes						266
Income tax expense						133
Net Income					$	133

MYRIAD PRODUCTS COMPANY Selected Accounts from Comparative Balance Sheets December 31, 2018 and 2017 ($ in millions)
	Year
	2018			2017			Change
Cash	$	120		$	118		$	2
Accounts receivable		249			259			(10	)
Inventory		449			468			(19	)
Accounts payable		185			170			15
Salaries payable		92			104			(12	)
Interest payable		52			38			14
Income taxes payable		42			28			14

Required:
Prepare the cash flows from operating activities section of the statement of cash flows for Myriad Products Company using the direct method. (Amounts to be deducted should be indicated with a minus sign. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

Answer 1

First I am giving you all the calculations to arrive at the figures to be used in the Cash Flow Statement

1. Purchases for the year

Cost of goods sold = Op Inventory + Purchases - Cl Inventory
Purchases = Cost of goods sold + Cl Inventory - Op Inventory
Purchases = 273 + 449 - 468
Purchases = 254

This means amount paid to vendor would be

Cl Payable = Op Payable + Purchases - Amount paid
Amount paid = Op Payable + Purchases - Cl Payable
Amount paid = 170 + 254 - 185 = 239

2. Amount collected from Debtors

Cl Receivable = Op Receivable + Sales - Amount Collected
Amount collected = Op Receivable + Sales - Cl Receivable
Amount collected = 259 + 780 - 249 = 790

3. Salaries Paid

Cl Payable = Op Payable + Salaries Expenses - Salaries paid
Salaries paid = Op Payable + Salaries Expense - Cl Payable
Salaries paid = 104 + 120 - 92 = 132

4. Interest paid

Cl Payable = Op Payable + Interest expense - Interest paid
Interest paid = Op payable + Interest expense - Cl payable
Interest paid = 38 + 26 - 52 = 12

5. Income taxes paid

Cl Payable = Op Payable + Tax expense - Tax paid
Tax paid = Op payable + Tax expense - Cl payable
Taxes paid = 28 + 133 - 42 = 119

Cash Flow Statement
Particulars	Amount
Cash collected from customers	$        790
Cash paid to suppliers	$      (239)
Cash paid to employees	$      (132)
From Operations	$        419
Interest paid	$        (12)
Income taxes paid	$      (119)
Cash generated from operating activities	$        288

Here it is from indirect

Net Income	$       133
Depreciation	$         86
Amortization	$           5
Loss on sale	$           4
Decrease in receivable	$         10
Inventory	$         19
Payable	$         15
Salaries	$        (12)
Interest	$         14
Taxes	$         14
	$       288