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1. Cash Flows from Operating ActivitiesA method of reporting the cash flows from operating activities as the difference between the operating cash receipts and the operating cash payments.Direct Method

   The income statement of Booker T Industries Inc. for the current year ended June 30 is as follows:

   Sales					$538,120
   Cost of goods sold					305,550
   Gross profit					$232,570
   Operating expenses:
   	Depreciation expense		$41,290
   	Other operating expenses		109,170
   		Total operating expenses			150,460
   Income before income tax					$82,110
   Income tax expense					22,780
   Net income					$59,330

   Changes in the balances of selected accounts from the beginning to the end of the current year are as follows:

   	Increase/ Decrease
   Accounts receivable (net)	$(11,930)
   Inventories	4,150
   Prepaid expenses	(3,980)
   Accounts payable (merchandise creditors)	(8,480)
   Accrued expenses payable (operating expenses)	1,190
   Income tax payable	(2,850)

   a. Prepare the Cash Flows from Operating Activities section of the A summary of the cash receipts and cash payments for a specific period of time, such as a month or a year.statement of cash flows, using the direct method. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.

   Booker T Industries Inc.
   Cash Flows from Operating Activities Section
   For the year ended on June 30
   Cash flows from operating activities:
   Cash received from customers Depreciation Net income Sales	$
   Cash payments for merchandise Collections of accounts receivable Net income Prepaid expenses
   Cash payments for operating expenses Cash received from customers Depreciation Sales
   Cash payments for income taxes Cash received from customers Net income Sales
   Net cash flow from operating activities		$

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   b. What does the direct method show about a companys cash flows from operating activities that is not shown using the indirect method?

   With the

   • direct method
   • indirect method
   , the cash received less the cash payments is the net cash flow from operating activities. Individual cash receipts and payments are reported in the Cash Flows from Operating Activities section.

   The

   • direct method
   • indirect method
   adjusts accrual-basis net income for revenues and expenses that do not involve the receipt or payment of cash to arrive at cash flows from operating activities.

2. The comparative balance sheet of Olson-Jones Industries Inc. for December 31, 20Y2 and 20Y1, is as follows:

   		Dec. 31, 20Y2		Dec. 31, 20Y1
   Assets
   Cash		$190		$60
   Accounts receivable (net)		109		75
   Inventories		68		41
   Land		156		170
   Equipment		87		65
   Accumulated depreciation-equipment		(23)		(12)
   	Total Assets	$587		$399
   Liabilities and Stockholders' Equity
   Accounts payable (merchandise creditors)		$74		$60
   Dividends payable		12		-
   Common stock, $10 par		39		19
   Paid-in capital: Excess of issue price over parcommon stock		102		47
   Retained earnings		360		273
   	Total liabilities and stockholders' equity	$587		$399

   The following additional information is taken from the records:

   1. Land was sold for $35.
   2. Equipment was acquired for cash.
   3. There were no disposals of equipment during the year.
   4. The common stock was issued for cash.
   5. There was a $126 credit to Retained Earnings for net income.
   6. There was a $39 debit to Retained Earnings for cash dividends declared.

   a. Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.

   Olson-Jones Industries, Inc.
   Statement of Cash Flows
   For the Year Ended December 31, 20Y2
   Cash flows from operating activities:
   Cash received from sale of common stock Decrease in accounts receivable Increase in inventories Net income	$
   Adjustments to reconcile net income to net cash flow from operating activities:
   Decrease in accounts receivable Depreciation Increase in accounts receivable Loss on sale of land
   Decrease in inventories Gain on sale of land Increase in accounts payable Loss on sale of land
   Changes in current operating assets and liabilities:
   Decrease in accounts receivable Decrease in inventories Depreciation Increase in accounts receivable
   Decrease in accounts payable Decrease in accounts receivable Decrease in inventories Increase in inventories
   Cash paid for dividends Decrease in accounts payable Depreciation Increase in accounts payable
   Net cash flow from operating activities		$
   Cash flows from investing activities:
   Cash paid for dividends Cash received from sale of land Depreciation Gain on sale of land	$
   Cash paid for purchase of equipment Cash received from sale of common stock Depreciation Increase in inventories
   Net cash flow provided by investing activities
   Cash flows from financing activities:
   Cash received from sale of common stock Cash received from sale of land Decrease in accounts payable Depreciation	$
   Cash paid for dividends Cash received from sale of land Decrease in inventories Increase in accounts receivable
   Net cash flow provided by financing activities
   Cash paid for dividends Change in cash Decrease in accounts payable Increase in accounts payable		$
   Cash at the beginning of the year
   Cash at the end of the year		$

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   b. Was Olson-Joness net cash flow from operations more or less than net income?

   • Less
   • More

   The source(s) of the difference are:

   1. Gain on the sale of land
   2. Purchase of equipment
   3. Sale of common stock
   4. Changes in current operating assets and liabilities
   5. Depreciation expense
   6. Dividends paid
   • a, d, and e
   • b, d, and e
   • b, c, and f
   • b, c, and e

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