Question

Pizza International, Inc., reported the following information (in thousands): Operating Activities Net Income $ 236 Depreciation 33,325 Increase in receivables 174 Decrease in inventory 651 Increase in prepaid expenses 668 Decrease in accounts payable 8,724 Increase in accrued liabilities 723 Decrease in income taxes payable 2,729 Payments on notes payable 12,695 Cash paid for equipment 29,077 The following summarized income statement for Pizza International, Inc. (in thousands): Revenues $ 143,951 Cost of Sales 45,700 Gross Profit 98,251 Salary and Wages Expense 56,855 Depreciation 33,325 Office Expenses 7,785 Net Income before Income Tax Expense 286 Income Tax Expense 50 Net Income $ 236 Required: Based on this information, compute cash flow from operating activities using the direct method. Assume Prepaid Expenses and Accrued Liabilities relate to office expenses. What was the primary reason that Pizza International was able to report large positive cash flow from operations despite nearly having a net loss?

Answer 1

Answer:

$22,640

The explanation is shown below:-

Explanation:

The computation of cash flow from operating activities using the direct method is shown below:-

                               Direct method

                            Pizza International, Inc.

                          Statement of cash inflow

Cash flow from operating expenses

Cash received from customers       $143,777

($143,951 - $174)

Cash Paid

To suppliers                                      ($53,773)

($45,700 - $651 + $8,724)

To salaries and wages                     ($56,855)

For office expenses                         ($7,730)

($7,785 + $668 - $723)

For income tax expenses               ($2,779)

($50 + $2,729)

Net cash inflow from operating

activities                                            $22,640

It is mainly due to no depreciation expenses for cash products. Depreciation expenses do not contribute to cash outflows. Because of which company has reported large cash inflow from operations compared to near net loss.