Direct Method

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cash_flows_using_the_direct_method.xlsx
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M6 Assignment

Module 6 Assignment:
Amy's Fashions ended the year 2012 with the following balance:
Amy's Fashions Amy's Fashions
Comparative Balance Sheet Comparative Income Statement
December 31, 2012 For the Year Ended 2012
2012 2011 Increase (Decrease) 2012
ASSETS Revenues:
Current Assets: sales 1,100,000
Cash and cash equivalents 140,350 95,900 44,450 Cost of Goods Sold 710,000
Accounts receivable 95,300 102,300 -7,000 Gross Profit 390,000
Inventory 165,200 157,900 7,300 Operating Expenses:
Prepaid expenses 6,240 5,860 380 Depreciation 23,500
Investments (long term) 35,700 84,700 -49,000 Patent Amortization 7,000
Plant Assets: Other operating expenses 196,000
Land 75,000 90,000 -15,000 Total Operating Expenses: 226,500
Buildings (net) 303,700 201,700 102,000 Income from operations 163,500
Equipment, net 279,800 290,300 -10,500 Other Income:
Patents 58,000 65,000 -7,000 Gain on sale of investments 11,000
Total Assets 1,159,290 1,093,660 65,630 Other Expenses:
Interest Expense 26,000 -15,000
LIABILITIES Income before income tax 148,500
Current Liabilities: Income tax expense 50,000
Accounts Payable 43,500 46,700 -3,200 Net Income 98,500
Accrued Liabilities 14,000 12,500 1,500 98,500
Income Taxes Payable 7,900 8,400 -500
Dividends Payable 14,000 10,000 4,000
Long Term Liabilities: 0
Mortgage note payable 40,000 40,000
Bonds Payable 150,000 250,000 -100,000
Total Liabilities 269,400 327,600 -58,200
STOCKHOLDER'S EQUITY 0
Common Stock 450,000 375,000 75,000
Additional paid in capital-common 66,250 41,250 25,000
Retained Earnings 373,640 349,810 23,830
Total Stockholders' Equity 889,890 766,060 123,830
Total Liabilities and Stockholders' Equity 1,159,290 1,093,660 65,630
1 Using the direct method, prepare the cash flows from operations for Amy's Fashions for the year ended 2012.
Amy's Fashions
Statement of Cash Flows-Direct Method
For the Year Ended 2012
Cash Flows from Operating Activities:
Cash received from customers 1,107,000
Deduct: Cash paid for merchandise 720,500
Cash paid for operating expenses 255,880
Cash paid for interest 26,000
Cash paid for income taxes 50,500 1,052,880 This is the answer but my highlighted figure does not match.
Net Cash Flow from Operating Activities 54,120 Net Cash Flow From Operating Activities = $115,120
Cash Received from Customers
Sales Revenue 1,100,000 Sales revenue on the income statement is our ACCRUAL basis sales figure, but if A/R increases, that means less people actually PAID us,
PLUS: Decrease in A/R 7000 if A/R decreases, that means we were paid MORE than the sales amount. Here, we collected not only the full 1,000,000 in sales, but ALSO
= Cash Received from Customers 1,107,000 7000 of receivables from the prior year, so we collected additional cash!
Cash Paid for Merchandise
Cost of Goods Sold 710,000 Cost of goods sold represents what the cost of our goods were that were sold. However, if inventory increased, that means we paid MORE in cash
PLUS: Increase in Inventory 7300 for inventory than what has currently been expensed, so we add that amount. We add any decrease in accounts payable as well, because we paid
Decrease in A/P 3200 for the inventory purchased on account this year in full, PLUS some of what was purchased last year.
= Cash Paid for Merchandise 720,500
Cash Paid for Operating Expenses
Operating Expenses 226,500 Starting with Operating Expenses, we subtract the non-cash expenses of depreciation and amortization because we never had to pay those.
LESS: Depreciation 23,500 We subtract any increases in accrued liabilities because those are items that were included as expenses that we haven't
Amortization 7,000 yet paid cash for. We add increases in Prepaid Expenses because these are expenses that we have already paid cash for, but that haven't yet
Increase in Accrued Liabilities -1500 been included in the operating expenses because they haven't been "used up" yet.
PLUS: Increase in Prepaid Expenses 380
= Cash Paid for Operating Expenses 255880
Cash Paid for Interest
Interest Expense 26,000 Starting with Interest Expense, we subtract any increases or add any decreases to the interest payable accounts, indicating that the expense
Less: Increase in Interest Payable 0 is different than the actual cash paid. In this case, there is an interest expense of 25,000, but no interest payable increases or decreases to
or Plus: Decrease in Interest Payable 0 show that this is different than the cash payment.
= Cash Paid for Interest 26,000
Cash Paid for Income Taxes
Income Tax Expense 50,000 Income tax expense is our starting point, then we add any decreases or subtract any increases to the income tax payable account to reflect
Plus: Decrease in Income Tax Payable 500 the actual cash paid for the income taxes this year.
= Cash Paid for Income Taxes 50,500