Question

Portions of the financial statements for Myriad Products are provided below. MYRIAD PRODUCTS COMPANY Income Statement For the Year Ended December 31, 2018 ($ in millions) Sales $980 Cost of goods sold 343 Gross margin 637 Salaries expense$170 Depreciation expense 106 Patent amortization expense 5 Interest expense 46 Loss on sale of land 4 331 Income before taxes 306 Income tax expense 153 Net Income $153 MYRIAD PRODUCTS COMPANY Selected Accounts from Comparative Balance Sheets December 31, 2018 and 2017 ($ in millions) Year 20182017Change Cash$150 $138 $12 Accounts receivable 269 289 (20) Inventory 469 488 (19) Accounts payable 223 210 13 Salaries payable 111 124 (13) Interest payable 69 58 11 Income taxes payable 60 48 12 Required: Prepare the cash flows from operating activities section of the statement of cash flows for Myriad Products Company using the direct method. (Amounts to be deducted should be indicated with a minus sign. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

Answer 1

Answer and Explanation:

The preparation of the cash flows from operating activities section of the statement of cash flows is presented below:

Cash Flow from Operating Activities  under Direct Method

Cash receipts from customers (Note 1)  $1,000

(-) Cash payments to merchandise (Note 2)  -$311

(-) Cash payment for Salaries expense (Note 3)  -$183

(-) Cash paid for interest paid (Note 4)  -$35

(-) Income Taxes paid (Note 5)    -$141

Net Cash Flow from Operating Activities   $330

Working Notes

1. Cash receipts from customers

Beginning Accounts Receivable   $289

Plus: Credit Sales made during the year   $980

Less: Ending Accounts Receivable   -$269

Cash Collected from Customers    $1,000

2. Cash payments to merchandise

Beginning Accounts Payable  $210

Add: Purchases made during the year    $324

Less: Ending Accounts Payable    -$223

Cash Paid to Supplier     $311

The Purchase made during the year  = Cost of Goods Sold  + Ending Inventory  - Beginning Inventory

= $343 + $469 - $488

= $324

3. Cash paid for salaries expense

Salaries Expense incurred   $170

Add: Beginning Balance   $124

Less: Ending balance   -$111

Cash paid for salaries expense  $183

4. Cash paid for Interest

Interest Expense incurred $46

Add: Beginning Balance   $58

Less: Ending balance   -$69

Cash paid for interest  $35

5. Cash paid for Income Taxes

Income tax expense incurred   $153

Add: Beginning Balance   $48

Less: Ending balance   -$60

Cash paid for Income Taxes  $141