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Managerial Accounting: The Corners...

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

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Booth Manufacturing has provided the following financial statements.

Chapter 14, Problem 49P, Booth Manufacturing has provided the following financial statements. Other information includes: (a) , example  1

Chapter 14, Problem 49P, Booth Manufacturing has provided the following financial statements. Other information includes: (a) , example  2

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
ParticularsIncome statement ($)Adjustments ($)Cash flows ($)
Cash flows from operating activities:   
Revenues1,200,00068,75011,268,750
Gain on sale of equipment50,000(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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