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.

WATERWAY COMPANY Income Statement For the Year Ended December 31, 2022
Service revenue		$970,400
Operating expenses, excluding depreciation	$624,000
Depreciation expense	55,100
Loss on disposal of plant assets	24,900	704,000
Income before income taxes		266,400
Income tax expense		39,800
Net income		$226,600

Waterway's balance sheets contained the comparative data at December 31, shown below.

	2022	2021
Accounts receivable	$75,800	$59,400
Accounts payable	40,800	27,400
Income taxes payable	13,300	6,800

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.

SUNLAND COMPANY Comparative Balance Sheets December 31
Assets	2022	2021
Cash	$37,400	$20,500
Accounts receivable	32,900	18,100
Inventory	30,600	20,000
Property, plant, and equipment	59,700	77,900
Accumulated depreciation	(29,100)	(23,500)
Total	$131,500	$113,000
Liabilities and Stockholders' Equity
Accounts payable	$28,300	$ 16,500
Income taxes payable	7,500	8,200
Bonds payable	27,900	32,800
Common stock	18,600	14,200
Retained earnings	49,200	41,300
Total	$131,500	$113,000

 

SUNLAND COMPANY Income Statement For the Year Ended December 31, 2022
Sales revenue		$241,800
Cost of goods sold		175,200
Gross profit		66,600
Selling expenses	$18,450
Administrative expenses	6,150	24,600
Income from operations		42,000
Interest expense		3,900
Income before income taxes		38,100
Income tax expense		7,620
Net income		$30,480

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.