Question

The following schedule relates the income statement with cash flows from operating activities, derived by both the direct and indirect methods. The amounts for income statement elements are missing.

Cash Flows from Operating Activities
Income Statement				Indirect Method				Direct Method
				Net income	$	?
				Adjustments:
Sales	$	?		Decrease in accounts receivable		14		Cash received from customers	$	644
Cost of goods sold		?		Increase in inventory		(28	)
				Decrease in accounts payable		(41	)	Cash paid to suppliers		(447	)
Salaries expense		?		Increase in salaries payable		15		Cash paid to employees		(40	)
Depreciation expense		?		Depreciation expense		21		(Not reported—no cash effect)
Insurance expense		?		Decrease in prepaid insurance		22		Cash paid for insurance		(18	)
Loss on sale of land		?		Loss on sale of land		18		(Not reported—no cash effect)
Income tax expense		?		Increase in income tax payable		18		Cash paid for income taxes		(38	)
Net income	$	?		Net cash flows from operating activities	$	101		Net cash flows from operating activities	$	101

Required:
Deduce the missing amounts and prepare the income statement.

Answer 1

Direct Method 62 $ 644 Cash Flows from Operating Activities Income Statement Indirect Method Net income $ Adjustments: Sales $ 630 Decrease in accounts receivable $ Cost of goods sold $ (378) Increase in inventory $ Decrease in accounts payable $ Salaries expense $ (55) Increase in salaries payable Depreciation expense $ (21) Depreciation expense $ Insurance expense $ (40) Decrease in prepaid insurance $ Loss on sale of land $ (18) Loss on sale of land Income tax expense | $ (56) Increase in income tax payable $ Net income $ 62 |Net cash flows from operating activities | $ $ (447) $ (40) 14 Cash received from customers (28) (41) Cash paid to suppliers 15 Cash paid to employees 21 (Not reported—no cash effect) 22 Cash paid for insurance 18 (Not reported—no cash effect) 18 Cash paid for income taxes 101 Net cash flows from operating activities $ (18) $ (38) $ 101

Working Notes: Sales : Cash Received from customers Less: Decrease in Accounts Receivables $ $ $ 644 14 630 Cost of Goods sold Cash paid to supplies Less: Increase in Inventory Decrease in accounts payable $ $ $ $ 447 28 41 378 Salaries Expense Cash paid to employees Add: Increase in salaries payable $ $ $ 40 15 55 Insurance Expense cash paid to insuarance Add: Decrease in prepaid insurance $ $ $ 18 22 40 Income tax Expenses Cash paid for Income taxes Add: Increase in Income tax payable $ $ $ 38 18 56