Question

Operating Cash Flows, Direct Method

The income statement for Piura Merchandising Corporation is as follows:

Piura Merchandising Corporation Income Statement At December 31, 20X2
Revenues		$1,490,000
Cost of goods sold
Beginning inventory	$430,000
Purchases	755,000
Ending inventory	(205,000)
		(980,000)
Depreciation expense		(53,000)
Amortization of patent		(20,500)
Wages expense		(74,000)
Insurance expense		(38,500)
Income before taxes		$324,000
Income taxes (all current)		(106,000)
Net income		$218,000

Other information is as follows:

1. Accounts payable decreased by $23,000 during the year.
2. Accounts receivable increased by $16,000.
3. All wages were paid at the beginning of the year; at the end of the year, wages payable had a balance of $10,000.
4. Prepaid insurance increased by $20,000 during the year.

Answer 1

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Piura Merchandising Corporation	Amount $		Answer a
Cash Received from sale			Cash Flow Direct Method	Amount $	Amount $
Sales	1,490,000.00		Cash Receipts from
Less: Increase in Accounts Receivable	16,000.00		Cash Received from sale	1,474,000.00		See A
Cash Received from sale	1,474,000.00	A	Total cash inflows		1,474,000.00
			Cash paid for Inventory purchased	778,000.00		See B
Cash paid for Inventory purchased			Cash paid for wages	64,000.00		See C
Purchases	755,000.00		Cash paid for Insurance expense	58,500.00		See D
Add: Decrease in Accounts Payable	23,000.00		Income Tax paid	106,000.00
Cash paid for Inventory purchased	778,000.00	B	Total cash outflows		1,006,500.00
			Net Cash inflow from operating activities		467,500.00
Cash paid for wages
Wages expense	74,000.00
Less: Closing Wages Payable	10,000.00
Cash paid for wages	64,000.00	C
Cash paid for Insurance expense
Insurance expense	38,500.00
Add: Increase in Prepaid Insurance	20,000.00
Cash paid for Insurance expense	58,500.00	D