WORKING PAPERS F/ FUND ACCOUNTING
WORKING PAPERS F/ FUND ACCOUNTING
22nd Edition
ISBN: 9781308868394
Author: Wild
Publisher: MCG CUSTOM
Question
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Chapter 16, Problem 16QS
To determine

Concept Introduction:

Cash flow from operating activities:

The operating activities are the revenue generating activities of the business. The cash flow related to these activities are cash received from customers, cash paid for inventory, cash paid for other expenses, cash paid for income taxes etc. When cash receipts and cash payments are used for calculating cash flow from operating activities, this method is termed as direct method.

To prepare:

Cash flow from operating activities section using direct method

Expert Solution & Answer
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Answer to Problem 16QS

Solution:

The cash flow from operating activities section using direct method is −

    CRUZ, INC.
    Cash Flow from operating activities(Using Direct Method)
    For the year Ended December 31, 2015
    Cash Flow from operating activities
    Receipts

    Cash received from customers

    4,98,000
    Less: Payments

    Cash paid to acquire inventory
    3,10,000

    Cash paid for other expenses
    86,300

    Cash paid for income tax
    18,500




    Total cash payments

    4,14,800



    Cash Flow from operating activities83,200

Explanation of Solution

The cash flow from operating activities using direct method is prepared as under −
First, the receipts are calculated.
The cash received from sale of customers for the year 2015 is calculated as under −
Given,

  • Sales for the year = $ 488,000
  • Accounts receivables for 2014 = $ 51,000
  • Accounts receivables for 2015 = $ 498,000

  •   Cash received from sales to customers = ( Accounts receivables for 2014  + Sales for the year )Accounts receivables for2015Cash received from sales to customers = ( $ 51,000 + $ 488,000)  $ 41,000Cash received from sales to customers = $ 498,000

The cash received from sale to customers for the year 2015 = $ 498,000
Next, cash payments for the year will be calculated.
There are three cash payments during the year related to operating activities −

  1. Cash paid to acquire inventory
  2. Cash paid for operating activities
  3. Cash paid for Income taxes.
These payments will be calculated as under −

1. Cash paid to acquire inventory −

The cash paid to acquire inventory during the year 2015 will be calculated as under −
Given,
  • Cost of goods sold for the year 2015 = $ 314,000
  • Inventory for 2015 = $ 85,800
  • Inventory for 2014 = $ 95,800
First, the purchases will be calculated as under −
  Purchases for the year = ( Inventory for 2015  + Cost of goods sold for the year )  Inventory for 2014Purchases for the year = ( $ 85,800 + $ 314,000)  $ 95,800Purchases for the year = $ 304,000

The purchases for the year = $ 304,000
Now, the cash paid to acquire inventory will be calculated as under −
Given,

  • Purchases for the year = $ 304,000
  • Accounts Payable for 2014 = $ 21,000
  • Accounts payable for 2015 = $ 15,000

  Cash paid to acquire inventory = ( Accounts Payable for 2014  + Purchases for the year )  Accounts payable for 2015Cash paid to acquire inventory = ( $ 21,000 + $ 304,000)  $ 15,000Cash paid to acquire inventory = $ 310,000

The cash paid to acquire inventory for 2015 = $ 310,000.

2. Cash paid for other expenses −

The cash paid for operating expenses for 2015 will be calculated as under −
Given,

  • Other expenses = $ 89,100
  • Prepaid expenses for 2014 = $ 4,200
  • Prepaid expenses for 2015 = $ 5,400
  • Wages payable in 2014 = $ 5,000
  • Wages payable in 2015 = $ 9,000
  Cash paid for operating expenses = ( Other expenses  + Prepaid expenses for 2015  + Wages payable in 2014 )  ( Prepaid expenses for 2014  + Wages payable in 2015 )Cash paid for operating expenses = ( $ 89,100 + $ 5,400 + $ 5,000)  ( $ 4,200 + $ 9,000)Cash paid for operating expenses = $ 86,300

The cash paid for operating expenses for 2015 = $ 86,300.

3. Cash paid for Income tax expense −

The cash paid for Income tax expense will be calculated as under −
Given,

  • Income tax expense for the year 2015 = $ 17,300
  • Income Tax Payable for 2015 = $ 1,400
  • Income Tax Payable for 2014 = $ 2,600
   Cash paid for Income tax expense = ( Income Tax Payable for 2014 +  Income tax expense for the year 2014 )Income Tax Payablefor2015 Cash paid for Income tax expense = ( $ 17,300 + $ 2,600 )  $ 1,400Cash paid for Income tax expense = $ 18,500

The cash paid for income taxes = $ 18,500.
Now, the total cash payments will be calculated as under −

   Total cash payments = Cash paid for inventory + Cash paid for other expenses + Cash paid for income taxes Total cash payments = $ 310,000 + $ 86,300 + $ 18,500Total cash payments = $ 414,800

Now, cash flow from operating activities will be calculated as −

   Cash flow from operating activities = Total receipts  Total payments Cash flow from operating activities = $ 498,000  $ 414,800Cash flow from operating activities = $ 83,200

The cash flow from operating activities = $ 83,200.

Conclusion

Thus, the cash flow from operating activities section using direct method has been prepared.

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Chapter 16 Solutions

WORKING PAPERS F/ FUND ACCOUNTING

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