Question

Portions of the financial statements for Parnell Company are provided below.

PARNELL COMPANY Income Statement For the Year Ended December 31, 2016 ($ in 000s)

Revenues and gains:
Sales	$720
Gain on sale of buildings	11		$	731
Expenses and loss:
Cost of goods sold	$260
Salaries	112
Insurance	32
Depreciation	115
Interest expense	42
Loss on sale of machinery	10			571
Income before tax				160
Income tax expense				80
Net income			$	80

PARNELL COMPANY        Selected Accounts from Comparative Balance Sheets        December 31, 2016 and 2015        ($ in 000s)
	Year
	2016	2015	Change
Cash	$126	$108	$18
Accounts receivable	316	224	92
Inventory	329	417	(88	)
Prepaid insurance	69	80	(11	)
Accounts payable	202	125	77
Salaries payable	118	101	17
Deferred income tax liability	76	60	16
Bond discount	180	208	(28	)

Required:

1.

Prepare the cash flows from operating activities section of the statement of cash flows for Parnell Company using the direct method. (Enter your answers in thousands (i.e., 5,000 should be entered as 5). Amounts to be deducted should be indicated with a minus sign.) Cash Flows from Operating Activities: Net cash flows from operating activities 2. Prepare the cash flows from operating activities section of the statement of cash flows for Parnell Company using the indirect method. (Enter your answers in thousands (i.e., 5,000 should be entered as 5). Amounts to be deducted should be indicated with a minus sign.) Cash Flows from Operating Activities: Adjustments for noncash effects: Changes in operating assets and liabilities: Net cash flows from operating activities

Answer 1

Please note that the total of Assets and Liabilities are not tallied out of the Balance Sheet provided in the question due to which cash flow from operating activities using direct method would not be matched with the cash flow from operating activities from indirect method. However, cash flow from operating activities from both the methods are given below, please refer the concept applied to solve this question and difference in cash flow using both the method may be avoided due to the above noted reason.

	Cash Flow From Operating Activities - Direct Method
	Particulars	Notes	Amount (thousands)
	Cash receipt from customers	1	628
	Cash Paid to Supplier	2	-271
	Insurance payment	3	-43
	Income Tax paid	4	-64
	Salary paid to employees	5	-95
	Net Cash flow from Operating activities		155
	Working Notes
1	Opening balance Accounts Receivable	224
	Sales	720
	Closing balance Accounts Receivable	-316
		628
2	Opening balance Accounts Payable	125
	Purchases	348
	Closing balance Accounts Payable	-202
		271
	Purcchases =
	Opening Inventory	417
	Cost of Goods Sold	260
	Closing Inventory	-329
		348
3	Opening Balance prepaid ins.	80
	Insurance Expense	32
	Closing Balance prepaid ins.	-69
		43
4	Deferred Income Tax Liability opening	60
	Income tax expense	80
	Deferred Income Tax Liability closing	-76
		64
5	Opeing balance Salary payable	101
	Salary expense	112
	Closing balance Salary payable	-118
		95
	Income Before Tax		160
	Adjustents for:
	Deprication	115
	Gain on Sale of Building	-11
	Interest Expense	42
	Loss on Sale of Machinery	10	156
	Operating Profit Before Working Capital Changes		316
	Adjustments for:
	Decrease in Current Assets
	Inventory	88
	Prepaid Insurance	11	99
Add :-	Increase in Current Liablities
	Accounts Payable	77
	Salaries Payable	17	94
Add :-	Increase in Current Assets
	Increase in Accounts Receivables	92	-92
	Cash Genrated from Operations		417
Less :-	Income Tax Paid		-64
	Net Cash flow from Operating activities (Indirect Method)		353