Cash flows from operating activities-direct method
The income statement of Goliath Industries Inc. for the current year ended June 30 is as follows:
|
Sales
|
|
$273,600
|
|
Cost of merchandise sold
|
|
155,400
|
|
Gross profit
|
|
$118,200
|
|
Operating expenses:
|
|
|
|
Depreciation expense
|
$21,000
|
|
|
Other operating expenses
|
55,440
|
|
|
Total operating expenses
|
|
76,440
|
|
Income before income tax
|
|
$41,760
|
|
Income tax expense
|
|
11,580
|
|
Net income
|
|
$30,180
|
Changes in the balances of selected accounts from the beginning to the end of the current year are as follows:
|
Increase
|
|
Decrease*
|
|
Accounts receivable (net)
|
$6,300*
|
|
Inventories
|
2,100
|
|
Prepaid expenses
|
2,040*
|
|
Accounts payable (merchandise creditors)
|
4,320*
|
|
Accrued expenses payable (operating expenses)
|
660
|
|
Income tax payable
|
1,440*
|
a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the direct method.
b. What does the direct method show about a company's cash flow from operating activities that is not shown using the indirect method?