Pastel Paints Company uses the direct method for its statement of cash flow.It reports the following information regarding the year 2014: From the income statement:
Sales Revenues,$265,000
Cost of Goods Sold,$210,000
Operating expenses,$31,000
Net Income $24,000
From the balance sheet:

- Assume that there were no sales of long-term assets,no Interest Revenue,and no expenses other than the expenses shown above.Also,assume that Accounts Payable are for purchases of inventory only.On the statement of cash flows,what amount will be shown for the net cash flow from operating activities?

Question

Pastel Paints Company uses the direct method for its statement of cash flow.It reports the following information regarding the year 2014: From the income statement:
Sales Revenues,$265,000
Cost of Goods Sold,$210,000
Operating expenses,$31,000
Net Income $24,000
From the balance sheet:

- Assume that there were no sales of long-term assets,no Interest Revenue,and no expenses other than the expenses shown above.Also,assume that Accounts Payable are for purchases of inventory only.On the statement of cash flows,what amount will be shown for the net cash flow from operating activities?

Quizplus · Accepted Answer

The net cash flow from operating activities is calculated using the direct method as follows:

Cash inflows from customers = Sales revenues
= $265,000

Cash outflows for inventory = Cost of goods sold
= $210,000

Cash outflows for operating expenses
= $31,000

Cash paid to suppliers = Increase in accounts payable
= $10,500 - $5,100 = $5,400

Net cash flow from operating activities
= Cash inflows from customers - Cash outflows for inventory - Cash outflows for operating expenses - Cash paid to suppliers
= $265,000 - $210,000 - $31,000 - $5,400
= $18,600

Therefore, the correct answer is B) $31,400.

Pastel Paints Company Uses the Direct Method for Its Statement