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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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The income statement for Piura Merchandising Corporation is as follows:

Chapter 14, Problem 43E, The income statement for Piura Merchandising Corporation is as follows: Other information is as

Other information is as follows:

  1. a. Accounts payable decreased by $20,000 during the year.
  2. b. Accounts receivable increased by $20,000.
  3. c. All wages were paid at the beginning of the year; at the end of the year, wages payable had a balance of $12,000.
  4. d. Prepaid insurance increased by $24,000 during the year.

Required:

Prepare a schedule of operating cash flows using the direct method.

To determine

Construct a schedule showing the operating cash flows with the use of direct method.

Explanation

Cash Flows from Operating Activities:

This category of a cash flow statement shows the operational and profit generating activities in a firm. The operating cash flows increase or decrease the current assets and current liabilities of a firm.

The schedule showing the operating cash flows using direct method is shown in table below:

Operating Cash Flows
For the year ended December 31, 20X1
Direct Method
ParticularsIncome statement ($)Adjustments ($)Cash flows ($)
Revenues1,500,000(20,000)11,480,000
Cost of goods sold(20,000)200,0002 
  (20,000)3(820,000)
Depreciation expense(100,000)100,000-
Amortization of patent(20,000)20,000-
Wages expense(80,000)12,000(68,000)
Insurance expense(40,000)(24,000)(64,000)
Income taxes(104,000) (104,000)
Net income156,000  
        Net cash from operating activities  424,000

Table (1)

Therefore, net cash flow from operating activities is $424,000...

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