Exercise 21-24 (Static) Cash flows from operating activities (indirect method) [LO21-4] Portions of the financial statements for Myriad Products are provided below: MYRIAD PRODUCTS COMPANY Income Statement For the Year Ended December 31, 2024 ($ in millions) Sales $ 660 Cost of goods sold 250 Gross margin 410 Salaries expense $ 110 Depreciation expense 90 Amortization expense 5 Interest expense 20 Loss on sale of land 3 228 Income before taxes 182 Income tax expense 91 Net Income $ 91 MYRIAD PRODUCTS COMPANY Selected Accounts from Comparative Balance Sheets December 31, 2024 and 2023 ($ in millions) Year Change 2024 2023 Cash $ 102 $ 100 $ 2 Accounts receivable 220 232 (12) Inventory 440 450 (10) Accounts payable 140 134 6 Salaries payable 80 86 (6) Interest payable 25 20 5 Income tax payable 15 10 5 Required: Prepare the cash flows from the operating activities section of the statement of cash flows for Myriad Products Company using the indirect method. Note: Enter your answers in millions (i.e., 10,000,000 should be entered as 10). Cash outflows should be indicated with a minus sign.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Exercise 21-24 (Static) Cash flows from operating activities (indirect method) [LO21-4]
Portions of the financial statements for Myriad Products are provided below:
| MYRIAD PRODUCTS COMPANY | ||
| Income Statement | ||
| For the Year Ended December 31, 2024 | ||
| ($ in millions) | ||
| Sales | $ 660 | |
|---|---|---|
| Cost of goods sold | 250 | |
| Gross margin | 410 | |
| Salaries expense | $ 110 | |
| Depreciation expense | 90 | |
| Amortization expense | 5 | |
| Interest expense | 20 | |
| Loss on sale of land | 3 | 228 |
| Income before taxes | 182 | |
| Income tax expense | 91 | |
| Net Income | $ 91 |
| MYRIAD PRODUCTS COMPANY | |||
| Selected Accounts from Comparative Balance Sheets | |||
| December 31, 2024 and 2023 | |||
| ($ in millions) | |||
| Year | Change | ||
|---|---|---|---|
| 2024 | 2023 | ||
| Cash | $ 102 | $ 100 | $ 2 |
| Accounts receivable | 220 | 232 | (12) |
| Inventory | 440 | 450 | (10) |
| Accounts payable | 140 | 134 | 6 |
| Salaries payable | 80 | 86 | (6) |
| Interest payable | 25 | 20 | 5 |
| Income tax payable | 15 | 10 | 5 |
Required:
Prepare the cash flows from the operating activities section of the statement of cash flows for Myriad Products Company using the indirect method.
Note: Enter your answers in millions (i.e., 10,000,000 should be entered as 10).
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