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					$	860
Cost of goods sold						301
Gross margin						559
Salaries expense	$	140
Depreciation expense		94
Patent amortization expense		5
Interest expense		34
Loss on sale of land		4				277
Income before taxes						282
Income tax expense						141
Net Income					$	141

MYRIAD PRODUCTS COMPANY Selected Accounts from Comparative Balance Sheets December 31, 2018 and 2017 ($ in millions)
	Year
	2018			2017			Change
Cash	$	132		$	126		$	6
Accounts receivable		257			271			(14	)
Inventory		463			476			(13	)
Accounts payable		193			186			7
Salaries payable		105			112			(7	)
Interest payable		51			46			5
Income taxes payable		42			36			6

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

Solution:

Myriad Products Company
Statement of Cash Flows (Direct Method)
For Year Ended December 31, 2018
Particulars	($ in Millions)
Cash Flows from operating activities:
Cash received from customers	$874
Cash paid to suppliers	-$281
Cash paid to employees	-$147
Cash paid for interest	-$29
Cash paid for income taxes	-$135
Net Cash provided by operating activities	$282

Workings:

Computation of cash received from customers
Particulars	Amount
Beginning accounts receivables	$271
Add: Sales	$860
Less: Ending accounts receivables	$257
Cash received from customers	$874
Computation of cash paid to Suppliers for inventory
Particulars	Amount
Cost of Goods Sold	$301
Add: Ending inventory	$463
Less: Beginning inventory	$476
Purchases made during the year	$288
Add: Opening accounts payable	$186
Less: Ending accounts payable	$193
Cash paid to supplier for inventory	$281
Computation of cash paid to employees
Particulars	Amount
Salaries Expense	$140
Add: Beginning Salaries Payable	$112
Less: Ending Salaries Payable	$105
Cash paid to employees	$147
Computation of cash paid for Interest
Particulars	Amount
Interest expense	$34
Add: Beginning interest Payable	$46
Less: Ending interest payable	$51
Cash paid for interest	$29
Computation of cash paid for Income Tax
Particulars	Amount
Income tax expense	$141
Add: Beginning income tax Payable	$36
Less: Ending income tax payable	$42
Cash paid for income tax	$135