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Colassard Industries has the following data available for preparation of its statement of cash flows: Sales revenue $385,800 Cost of goods sold 203,100 Wages expense 62,400 Insurance expense 13,780 Interest expense 15,150 Income taxes expense 27,400 Accounts receivable, decrease 15,600 Inventory, increase 8,710 Prepaid insurance, increase 1,550 Accounts payable, increase 3,680 Notes payable, increase 40,000 Interest payable, increase 1,240 Wages payable, decrease 6,700 Required: Prepare the cash flows from operating activities section of the statement of cash flows using the direct method. Use a minus sign to indicate any decreases in cash or cash outflows.

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Answer:

Cash flows from operating activities section

Net Income before tax (385,800-203,100- 62,400-13,780-15,150)       91,370

Adjustment of Working Capital items :

Decrease in Accounts Receivable                                                           15,600

Increase in  Inventory                                                                                 (8,710)

Increase in Prepaid insurance                                                                  (1,550)

Increase in Accounts payable                                                                    3,680

Increase in Notes payable                                                                       40,000

Increase in Interest payable                                                                        1,240

Decrease in Wages payable                                                                    (6,700)

Net Cash flow from operating activities                                                134,940

Explanation:

The Indirect method of determining cash flows from operating activities adjust the net income against non-cash items included i income statement and working capital adjustments.

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