Question

Question:Data for the Vince Gill Company are presented in E23-3.

Instructions

Prepare the operating activities section of the statement of cash flows using the direct method.

Short answer

Answer

The net cash provided by operating activities is computed as $1,225,000

Step-by-step solution

Computation of cash receipts from customers

$\begin{array}{rcl}\mathbf{Cash}\mathbf{}\mathbf{receipts}\mathbf{}\mathbf{from}\mathbf{}\mathbf{customers}& \mathbf{=}& \mathbf{Sales}\mathbf{}\mathbf{Revenue}\mathbf{+}\mathbf{Decrease}\mathbf{}\mathbf{in}\mathbf{}\mathbf{accounts}\mathbf{}\mathbf{receivables}\\ & \mathbf{=}& \mathbf{6}\mathbf{,}\mathbf{900}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{360}\mathbf{,}\mathbf{000}\\ & \mathbf{=}& \mathbf{\$}\mathbf{7}\mathbf{,}\mathbf{260}\mathbf{,}\mathbf{000}\\ & & \end{array}$

Computation of cash payment to suppliers

	Amount ($)
Cost of goods sold	4,700,000
Less: Decrease in Inventories	-300,000
Purchases	4,400,000
Add: Decrease in accounts payable	275,000
Cash Payments to suppliers	4,675,000

Computation of cash payment for operating expenses

	Amount ($)	Amount ($)
Cash payments for operating expenses
Operating expenses, exclusive of depreciation [450,000+(700,000-60,000)]		1,090,000
Add: Increase in prepaid expenses	170,000
Decrease in accrued prepaid expenses payable	100,000	270,000
Cash Payment for operating expenses		1,360,000

Preparation statement of cash flow (partial)

VINCE GILL COMPANY
Partial Statement of Cash Flows
For the year ended December 31, 2017
Cash flows from operating activities
Cash Receipts from customers		$7,260,000
Cash Payments:
To suppliers	$4,675,000
For Operating expenses	1,360,000	6,035,000
Net cash provided by operating activities		$1,225,000