Question

CLEAR TRANSMISSIONS COMPANY Income Statement For the Year Ended December 31, 2018 ($ in 000s) Sales $ 1,620 Cost of goods sold 648 Gross margin 972 Salaries expense $ 280 Depreciation expense 205 Patent amortization expense 20 Interest expense 60 Loss on sale of cash equivalents 11 576 Income before taxes 396 Income tax expense 198 Net Income $ 198 CLEAR TRANSMISSIONS COMPANY Selected Accounts from Comparative Balance Sheets December 31, 2018 and 2017 ($ in 000s) Year 2018 2017 Change Cash $ 117 $ 110 $ 7 Accounts receivable 230 247 (17 ) Inventory 445 460 (15 ) Accounts payable 165 154 11 Salaries payable 85 96 (11 ) Interest payable 40 30 10 Income taxes payable 30 20 10 Required: Prepare the cash flows from operating activities section of the statement of cash flows for Clear Transmissions Company using the direct method. (Enter your answers in thousands (i.e., 5,000 should be entered as 5). Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Answer:

Net Cash from Operating Activities is $488 after making all the non-adjustments, working capital changes adjustments and adjustments of interest and tax cash payments.

Solution in Excel file is attached for your reference.

Explanation:

                                        Clear Transmissions Company

              Statement of Cash Flows for the year ended December 31, 2018

Net Profit before tax                                                      $396  

Add: Adjustment for Interest Expense                             $60  

 

Profit from operations                                                      $456    

Adjustment of Non Cash Expenses:  

Depreciation                                                                     $205  

Patent Amortization                                                     $20  

Loss on Sale of Cash Equivalents                             $11  

Decrease in Salaries & Wages Payable                     $(11)  

Increase in Interest Payable                                             $10

Increase in Tax Payable                                             $10

 

Operating profit before working capital changes      $701

Working Capital Changes  

Decrease in Inventory                                                     $15  

Decrease in Accounts Receivables                             $17  

Increase in Accounts Payable                                     $11  

 

Cash generated from Operations                              $744  

Tax Paid (Working 1)                                                     $(188)

Interest Paid (Working 2)                                             $(50)

 

Net cash from operating activities                              $506  

Working 1  

Opening Tax Payable                                                      $20

Add: Tax Payable charged to Income Statement      $198  

Less: Cash Payment (Balancing Figure)                       $(188)

Closing Tax Payable                                                      $30  

Working 2  

Opening Interest Payable                                              $30

Add: Interest Payable charged to Income Statement      $60  

Less: Cash Payment (Balancing Figure)                       $(50)

Closing Interest Payable                                              $40