Chapter 14, Problem 49P

### Managerial Accounting: The Corners...

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

Chapter
Section

### Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
1 views

# Booth Manufacturing has provided the following financial statements.Other information includes: (a) equipment with a book value of $125,000 was sold for$175,000 (original cost was $225,000) and (b) dividends of$225,000 were declared and paid.Required:Calculate operating cash flows using the direct method.

To determine

Compute 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 calculation of operating cash flows using direct method is shown in the table below:

 Operating Cash Flows B Manufacturing For the year ended December 31, 20X2 Direct Method Particulars Income statement ($) Adjustments ($) Cash flows ($) Cash flows from operating activities: Revenues 1,200,000 68,7501 1,268,750 Gain on sale of equipment 50,000 (50,000) - Cost of goods sold (640,000) (25,000)2 (62,500)3 (727,500) Depreciation expense (125,000) 125,000 - Interest expense (35,000) - (35,000) Net cash from operating activities 506,250 Table (1) Therefore, net cash flow from operating activities is$506,250.

Working Note:

1.

Calculation of difference in accounts receivable:

(DifferenceinAccountsReceivable)=(AmountofAccountsReceivableof20X2AmountofAccountsReceivableof20X1)=($281,250$350,000)=\$68,750

2

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