Question - Computation of Operating Activities-Direct Method
Presented below are two independent situations.
Situation A: Chenowith Co. reports revenues of $200,000 and operating expenses of $110,000 in its first year of operations, 2010. Accounts receivable and accounts payable at year-end were $71,000 and $39,000, respectively. Assume that the accounts payable related to operating expenses. Ignore income taxes.
Instructions - Using the direct method, compute net cash provided (used) by operating activities.
Situation B: The income statement for Edgebrook Company shows cost of goods sold $310,000 and operating expenses (exclusive of depreciation) $230,000. The comparative balance sheet for the year shows that inventory increased $21,000, prepaid expenses decreased $8,000, accounts payable (related to merchandise) decreased $17,000, and accrued expenses payable increased $11,000.
Instructions - Compute (a) cash payments to suppliers and (b) cash payments for operating expenses.