Question

Portions of the financial statements for Peach Computer are provided below.PEACH COMPUTER Income Statement For the year ended December 31, 2015Net sales $2,050,000Expenses:Cost of goods sold $1,150,000Operating expenses 660,000Depreciation expense 60,000Income tax expense 50,000Total expenses 1,920,000Net income $ 130,000PEACH COMPUTER Selected Balance Sheet Data December 31 2015 2014 Increase (I) or Decrease (D) Cash $112,000 $90,000 $22,000 (I)Accounts receivable 46,000 54,000 8,000 (D)Inventory 85,000 60,000 25,000 (I)Prepaid rent 4,000 7,000 3,000 (D)Accounts payable 55,000 42,000 13,000 (I)Income tax payable 6,000 15,000 9,000 (D)Required: Prepare the operating activities section of the statement of cash flows for Peach Computer using the direct method. (List cash outflows as negative amounts.)

Answer 1

Answer:

See below.

Explanation:

Cash flow from operating activities is as follows:

Net income                                                                 $130,000

Add: Depreciation                                                      $60,000

Less: Increase in receivables                                -   ($8,000)

Add: Decrease in inventory                                        $25,000

Less: Prepaid rent increase                                   -   ($3,000)

Less: Decrease in payable                                     -    ($13,000)

Add: Increase in tax payable                                       $9,000

Net effect on CF from Operating activities                 $+200,000

This effect is added to the opening cash balance along with net effects from Investing and Financing activities to arrive at the closing cash balance.

Hope that helps.