Question

Based on the class text book- Principles of Managerial Finance by Gitman & Zutter - Chapter 4-Cash Flow and Financial Planning other additional readings, Solve the following problem on Cash Flow Statement.

The income statement and a partial balance sheet for Jefferson Company is presented below.

                          Jefferson Company

                            Income Statement

                     For the Year Ended December 31, 2014

Sales                                                        $500,000

Cost of goods sold                                        390,000

Gross profit $                                                                110,000

Operating expenses:

Salaries$                                                    70,000

Depreciation expense                                   20,000

Miscellaneous                                             10,000          100,000

                         Net income                                         $10,000

                                                                                   ======

_______________________________________________________________________________________________________________

                        Jefferson Company

                        Partial Balance Sheet

                         December 31, 2014

12/31/2014               12/31/2013

Cash                                                      $80,000                          $65,000

Accounts receivable (net)                           57,000                            50,000

Inventories                                          102,000                                86,000

Prepaid expenses                                     4,500                                  4,000

Accounts payable (merchandise)              58,000                                51,000

Salaries payable                                       7,500                                6,000

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

Answer 1

Cash received from customer = Beginning accounts receivable + Sales - Ending accounts receivable
Cash received from customer = $50,000 + $500,000 - $57,000
Cash received from customer = $493,000

Purchases = Ending inventories + Cost of goods sold - Beginning inventories
Purchases = $102,000 + $390,000 - $86,000
Purchases = $406,000

Cash paid to suppliers = Beginning accounts payable + Purchases - Ending accounts payable
Cash paid to suppliers = $51,000 + $406,000 - $58,000
Cash paid to suppliers = $399,000

Cash paid for miscellaneous expenses = Ending prepaid expenses + Miscellaneous expenses - Beginning prepaid expenses
Cash paid for miscellaneous expenses = $4,500 + $10,000 - $4,000
Cash paid for miscellaneous expenses = $10,500

Cash paid for salaries = Beginning salaries payable + Salaries expense - Ending salaries payable
Cash paid for salaries = $6,000 + $70,000 - $7,500
Cash paid for salaries = $68,500