The following information was made available from the
income statement and balance sheet of Lauren Company.
Item 12/31/10 12/31/09
Accounts Receivable $53,400 58,600
Accounts Payable 35,600 32,700
Merchandise Inventory 85,000 79,000
Sales (2010) 243,000
Interest Revenue (2010) 5,600
Dividend Revenue (2010) 1,200
Tax Expense (2010) 12,300
Salaries Expense (2010) 28,000
COGS (2010) 65,000
Interest Expense (2010) 3,600
Operating Expenses 28,500
Complete the cash flow from operating activities section for
Lauren Company using the direct method for the year ended
December 31, 2010.
How do I figure out these answers?
To determine the cash flow from operating activities using the direct method, we need to analyze the changes in the accounts related to operating activities.
First, let's identify the necessary information from the given data:
1. Sales (2010): $243,000
2. COGS (Cost of Goods Sold) (2010): $65,000
3. Salaries Expense (2010): $28,000
4. Operating Expenses: $28,500
5. Interest Expense (2010): $3,600
6. Interest Revenue (2010): $5,600
7. Dividend Revenue (2010): $1,200
8. Tax Expense (2010): $12,300
9. Accounts Receivable (12/31/10): $53,400
10. Accounts Receivable (12/31/09): $58,600
11. Accounts Payable (12/31/10): $35,600
12. Accounts Payable (12/31/09): $32,700
To calculate the cash flow from operating activities using the direct method, we need to evaluate the changes in the working capital accounts: accounts receivable and accounts payable.
1. Determine the change in accounts receivable:
Change in Accounts Receivable = Accounts Receivable (12/31/10) - Accounts Receivable (12/31/09)
Change in Accounts Receivable = $53,400 - $58,600
Change in Accounts Receivable = -$5,200
2. Determine the change in accounts payable:
Change in Accounts Payable = Accounts Payable (12/31/10) - Accounts Payable (12/31/09)
Change in Accounts Payable = $35,600 - $32,700
Change in Accounts Payable = $2,900
Now, we can calculate the cash flow from operating activities using the direct method:
Cash Flow from Operating Activities = Net Income + Decrease in Working Capital Accounts - Increase in Working Capital Accounts + Non-cash Expenses (or - Non-cash Revenues)
Net Income = Sales - COGS - Salaries Expense - Operating Expenses - Interest Expense + Interest Revenue + Dividend Revenue - Tax Expense
Net Income = $243,000 - $65,000 - $28,000 - $28,500 - $3,600 + $5,600 + $1,200 - $12,300
Net Income = $112,400
Decrease in Working Capital Accounts = Change in Accounts Receivable
Decrease in Working Capital Accounts = -$5,200
Increase in Working Capital Accounts = Change in Accounts Payable
Increase in Working Capital Accounts = $2,900
Non-cash Expenses = Depreciation Expense (Not given in the provided information)
Finally, substitute the values into the formula:
Cash Flow from Operating Activities = $112,400 + (-$5,200) - $2,900 + Non-cash Expenses
Please note that the answer will be incomplete since we don't have the information about depreciation expense, which is a non-cash expense. You would need to know the depreciation expense to calculate the complete cash flow from operating activities using the direct method.