Question

Portions of the financial statements for Parnell Company are provided below. PARNELL COMPANY Income Statement For the Year Ended December 31, 2018 ($ in 000s) Revenues and gains: Sales $ 770 Gain on sale of buildings 12 $ 782 Expenses and loss: Cost of goods sold $ 285 Salaries 117 Insurance 37 Depreciation 120 Interest expense 47 Loss on sale of machinery 12 618 Income before tax 164 Income tax expense 82 Net income $ 82 PARNELL COMPANY Selected Accounts from Comparative Balance Sheets December 31, 2018 and 2017 ($ in 000s) Year 2018 2017 Change Cash $ 131 $ 103 $ 28 Accounts receivable 321 219 102 Inventory 324 422 (98 ) Prepaid insurance 69 85 (16 ) Accounts payable 207 120 87 Salaries payable 108 96 12 Deferred income tax liability 66 55 11 Bond discount 184 203 (19 ) Required: 1. Prepare the cash flows from operating activities section of the statement of cash flows for Parnell Company using the direct method. 2. Prepare the cash flows from operating activities section of the statement of cash flows for Parnell Company using the indirect method.

Answer 1

Answer:

Net Cash flow from Operating Activities (Direct Method) = $343

Net Cash flow from Operating Activities (Indirect Method) = $343

Explanation:

Cash Flow Statement - Operating Activities  (Direct Method)  

                                                                              Amount in $

Cash receipts from Customer (219+770-321)            668

Less: Cash paid to suppliers (120+285-207-98)       -100

Cash paid Employees (96+117-108)                       -105

Cash Paid to Insurance (69+37-85)                            -21

Cash Generated from operation                               442

Less: Interest paid (47-19)                                        -28

Income tax paid (55+82-66)                                        -71

Net Cash flow from Operating Activities              343

Cash Flow Statement - Operating Activities  (Indirect Method)  

                                                                              Amount in $

Net Income                                                                   82

Add: Depreciation Expenses                                      120

Loss on sale of Machinery                                         12

Decrease in Inventory (422-324)                               98

Increase in Account payable (207-120)                 87

Increase in salaries payable (108-96)                           12

Decrease in prepaid Insurance (69-85)                  16

Decrease in Bond Discount (184-203)                         19

Increase in Deferred Tax Liabilities (66-55)         11

Less: Gain on sale of Building                              -12

Increase Accounts receivable (321-219)             -102

Net Cash flow from Operating Activities             343