Question

The income statement and a schedule reconciling cash flows from operating activities to net income are provided below ($ in millions) for Mike Roe Computers.

MIKE ROE COMPUTERS Income Statement For the Year Ended December 31, 2018
Sales				$	148.60
Cost of goods sold					(89.30	)
Gross margin					59.30
Salaries expense	$	18.60
Insurance expense		11.60
Depreciation expense		4.30
Interest expense		5.30			(39.80	)
Gains and losses:
Gain on sale of equipment					10.60
Loss on sale of land					(1.60	)
Income before tax					28.50
Income tax expense					(14.25	)
Net income				$	14.25

Reconciliation of Net Income to Net Cash Flows from Operating Activities
Net income	$	14.25
Adjustments for noncash effects:
Decrease in accounts receivable		4.30
Gain on sale of equipment		(10.60	)
Increase in inventory		(5.30	)
Increase in accounts payable		8.30
Increase in salaries payable		2.30
Depreciation expense		4.30
Decrease in bond discount		2.65
Decrease in prepaid insurance		1.30
Loss on sale of land		1.60
Increase in income tax payable		5.30
Net cash flows from operating activities	$	28.40

Required:
1. Provide the summary journal entry which shows the cash flow for each of the following for Mike Roe Computers during the reporting period: received from customers, paid to suppliers, paid to employees, paid for interest, paid for insurance, paid for income taxes.
2. Prepare the cash flows from operating activities section of the statement of cash flows (direct method).

Requirement 1

Provide the summary journal entry which shows the cash flow for each of the following for Mike Roe Computers during the reporting period: received from customers, paid to suppliers, paid to employees, paid for interest, paid for insurance, paid for income taxes. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50).)

Record the summary journal entry showing cash received from customers during the reporting period.

Record the summary journal entry showing cash paid to suppliers of goods during the reporting period.

Record the summary journal entry showing cash paid to employees during the reporting period.

Record the summary journal entry showing cash paid for interest during the reporting period.

Record the summary journal entry showing cash paid for insurance during the reporting period.

Record the summary journal entry showing cash paid for income taxes during the reporting period.

Requirement 2

Prepare the cash flows from operating activities section of the statement of cash flows (direct method). (Enter your answers in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50). Amounts to be deducted should be indicated with a minus sign.)

	Cash Flows from Operating Activities: Net cash flows from operating activities

Answer 1

1) Summary journal entries are shown as follows:- (Amount in million $)

Account Titles and Explanations	Debit	Credit
Cash (received from customers) (148.60+4.30)	152.90
Accounts Receivable		4.30
Sales revenue		148.60
(To record the cash received from customers)
Cost of goods sold	89.30
Inventory	5.30
Accounts Payable		8.30
Cash (Bal. fig.) (89.30+5.30-8.30)		86.30
(To record the cash paid to suppliers)
Salaries Expense	18.60
Salaries Payable		2.30
Cash (18.60-2.30)		16.30
(To record the cash paid to employees)
Interest Expense	5.30
Discount on Bonds Payable		2.65
Cash (5.30-2.65)		2.65
(To record the cash paid for interest)
Insurance Expense	11.60
Prepaid Insurance		1.30
Cash (11.60-1.30)		10.30
(To record the cash paid for insurance)
Income Tax Expense	14.25
Income Tax Payable		5.30
Cash (14.25-5.30)		8.95
(To record the cash paid for income taxes)

2) Cash flow from operating activites section of Statement of Cash flows

(Direct method) (Amount in million $)

Cash Flows from Operating activities
Cash received from customers	152.90
Cash paid to suppliers	(86.30)
Cash paid to employees	(16.30)
Cash paid for interest	(2.65)
Cash paid for insurance	(10.30)
Cash paid for income taxes	(8.95)
Net cash flow from Operating Activities	28.40