Concept explainers
A.
Determine the amount of cash paid for merchandise.
A.

Explanation of Solution
Statement of
Direct method: This method uses the basis of cash for preparing the cash flows statement.
Cash flows from operating activities: In this direct method, cash flow from operating activities is computed by using all cash receipts and cash payments during the year.
Cash Receipts: It encompasses all the cash receipts from sale of goods and on
Cash Payments: It encompasses all the cash payments that are made to suppliers of goods and all expenses that are paid.
The below table shows the way of calculation of cash flows from operating activities:
Cash flows from operating activities (Direct method) |
Add: Cash receipts. |
Cash receipt from customer |
Less: Cash payments: |
To supplier |
For operating expenses |
Income tax expenses |
Net cash provided from or used by operating activities |
Determine the amount of cash paid for merchandise.
Therefore, the amount of cash paid for merchandise is $1,025,800.
Working notes:
Calculate increase or decrease in merchandise inventories:
Calculate increase or decrease in accounts payable:
Cash payments for purchase represents the total amount of cash paid for the purchase as well as to the accounts payable.
B.
Determine the amount of cash paid for operating expenses.
B.

Explanation of Solution
Therefore, the amount of cash paid for operating expenses is $179,170.
Working note:
Calculate increase or decrease in operating expenses / accrued expense payable:
Calculate increase or decrease in prepaid expenses:
Cash payments for accrued expense represent the total amount of cash paid for the operating expense as well as to the accrued expense payable.
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