Question

Krauss Company’s income statement for the year ended December 31, 2017, contained the following condensed information.

Service revenue \(840,000

Operating expenses (excluding depreciation) \)624,000

Depreciation expense 60,000

Loss on sale of equipment 26,000 710,000

Income before income taxes 130,000

Income tax expense 40,000

Net income \( 90,000

Krauss’s balance sheet contained the following comparative data at December 31.

2017 2016

Accounts receivable \)37,000 $54,000

Accounts payable 41,000 31,000

Income taxes payable 4,000 8,500

(Accounts payable pertains to operating expenses.)

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

Short answer

The net cash provided by operating activities is computed as $198,500

Step-by-step solution

Computation of cash receipts from customers

$\begin{array}{c}\mathrm{Cash}\mathrm{receipts}\mathrm{from}\mathrm{customers}=\mathrm{Service}\mathrm{Revenue}+\mathrm{Decrease}\mathrm{in}\mathrm{accounts}\mathrm{receivables}\\ \mathbf{=}\mathbf{840}\mathbf{,}\mathbf{000}\mathbf{-}(\mathbf{54}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{37}\mathbf{,}\mathbf{000})\\ =\$857,000\end{array}$

Computation of cash payment to suppliers

$\begin{array}{c}\mathrm{Cash}\mathrm{payment}\mathrm{for}\mathrm{operating}\mathrm{expenses}=\mathrm{Operating}\mathrm{expenses}\mathrm{per}\mathrm{income}\mathrm{statement}-\mathrm{Increase}\mathrm{in}\mathrm{accounts}\mathrm{payable}\\ \mathbf{=}\mathbf{624}\mathbf{,}\mathbf{000}\mathbf{-}(\mathbf{41}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{31}\mathbf{,}\mathbf{000})\\ =\$614,000\end{array}$

Computation of cash payment for operating expenses

$\begin{array}{c}\mathrm{Cash}\mathrm{payment}\mathrm{for}\mathrm{income}\mathrm{taxes}=\mathrm{Incometax}\mathrm{expense}\mathrm{per}\mathrm{incomestatement}+\mathrm{Decrease}\mathrm{in}\mathrm{incometaxes}\mathrm{payable}\\ \mathbf{=}\mathbf{40}\mathbf{,}\mathbf{000}\mathbf{+}(\mathbf{8}\mathbf{,}\mathbf{500}\mathbf{-}\mathbf{4}\mathbf{,}\mathbf{000})\\ =\$44,500\end{array}$

Preparation statement of cash flow (partial)

KRAUSS COMPANY
Partial Statement of Cash Flows
For the year ended December 31, 2017
Particulars	Amount ($)	Amount ($)
Cash flows from operating activities		$857,000
Cash Receipts from customers
Cash Payments:
For Operating expenses	$614,000
For Income Taxes	44,500	658,500
Net cash provided by operating activities		$198,500