Reference no: EM133129641
Question 1 - Sheffield Company completed its first year of operations on December 31, 2022. Its initial income statement showed that Sheffield had sales revenue of $193,500 and operating expenses of $88,000. Accounts receivable and accounts payable at year-end were $67,100 and $29,000, respectively. Assume that accounts payable are related to operating expenses. Ignore income taxes.
Required - Compute net cash provided by operating activities using the direct method.
Question 2 - Suppose the 2022 income statement for McDonald's Corporation shows cost of goods sold $4,824.3 million and operating expenses (including depreciation expense of $1,294.0 million) $10,692.8 million. The comparative balance sheets for the year show that inventory decreased $5.3 million, prepaid expenses increased $42.2 million, accounts payable (inventory suppliers) increased $17.9 million, and accrued expenses payable increased $203.7 million.
Required - Using the direct method, compute (a) cash payments to suppliers and (b) cash payments for operating expenses.
Question 3 - Waterway Company's income statement contained the following condensed information.
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WATERWAY COMPANY
Income Statement
For the Year Ended December 31, 2022
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Service revenue
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$970,400
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Operating expenses, excluding depreciation
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$624,000
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Depreciation expense
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55,100
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Loss on disposal of plant assets
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24,900
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704,000
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Income before income taxes
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266,400
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Income tax expense
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39,800
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Net income
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$226,600
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Waterway's balance sheets contained the comparative data at December 31, shown below.
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2022
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2021
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Accounts receivable
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$75,800
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$59,400
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Accounts payable
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40,800
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27,400
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Income taxes payable
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13,300
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6,800
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Accounts payable pertain to operating expenses.
Required - Prepare the operating activities section of the statement of cash flows using the direct method.
Question 4 - Presented here are the financial statements of Sunland Company.
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SUNLAND COMPANY
Comparative Balance Sheets
December 31
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Assets
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2022
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2021
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Cash
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$37,400
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$20,500
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Accounts receivable
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32,900
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18,100
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Inventory
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30,600
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20,000
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Property, plant, and equipment
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59,700
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77,900
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Accumulated depreciation
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(29,100)
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(23,500)
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Total
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$131,500
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$113,000
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Liabilities and Stockholders' Equity
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Accounts payable
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$28,300
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$ 16,500
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Income taxes payable
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7,500
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8,200
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Bonds payable
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27,900
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32,800
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Common stock
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18,600
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14,200
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Retained earnings
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49,200
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41,300
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Total
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$131,500
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$113,000
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SUNLAND COMPANY
Income Statement
For the Year Ended December 31, 2022
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Sales revenue
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$241,800
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Cost of goods sold
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175,200
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Gross profit
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66,600
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Selling expenses
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$18,450
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Administrative expenses
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6,150
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24,600
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Income from operations
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42,000
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Interest expense
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3,900
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Income before income taxes
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38,100
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Income tax expense
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7,620
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Net income
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$30,480
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Additional data:
1. Depreciation expense was $17,100.
2. Dividends declared and paid were $22,580.
3. During the year, equipment was sold for $6,700 cash. This equipment originally cost $18,200 and had accumulated depreciation of $11,500 at the time of sale.
4. Bonds were redeemed at their carrying value.
5. Common stock was issued at par for cash.
Further analysis reveals the following.
1. Accounts payable pertain to merchandise suppliers.
2. All operating expenses except for depreciation were paid in cash.
3. All depreciation expense is in the selling expense category.
4. All sales and inventory purchases are on account.
Required - A. Prepare a statement of cash flows for Sunland Company using the direct method.
B. Compute free cash flow.
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