Based on the Information in the Following Income Statement and Balance

question 70

Essay

Based on the information in the following income statement and balance sheet for Monterey Corporation, determine the cash flows from operating activities using the direct method.
$\begin{array} { c } \text { Monterey Corporation } \\\text { Income Statement }\\ { \text { For Year Ended December 31, 20X2 } } \\ \begin{array} { | l | l | l | } \hline \text { Sales } & & \$504,000\\\hline \text { Cost of goods sold } & 327,600& \\\hline \text { Depreciation } & 42,000& \\\hline \text { Other operating expenses } &\underline{125,500} &(495,100) \\\hline \text { Other gains (losses): } & & \\\hline \text { Gain on sale of equipment } & & \underline{7,200}\\\hline \text { Income before taxes } & &16,100 \\\hline \text { Income tax expense } & &\underline{(4,800) }\\\hline \text { Net income } & & \underline{\$11,300}\\\hline &\\\hline\end{array}\end{array}$ $\begin{array}{c}\text {Monterey Corporation}\\\text {Balance Sheets}\\\text {At December 31}\\ \begin{array}{|l|l|l|}\hline& 20 \mathrm{X} 2 & 20 \mathrm{X} 1 \\\hline \text { Cash } & \$ 64,650 & \$ 55,800 \\ \hline \text { Accounts receivable } & 21,000 & 29,000 \\\hline \text { Inventory } & 58,000 & 52,100 \\\hline \text { Equipment }& 440,000 & 222,000 \\\hline\text { Accumulated depreciation } &\underline{ (106,000)} & \underline{(96,000)} \\\hline \text { Total assets } & \underline{\$ 277,650 }&\underline{ \$ 262,900 }\\\hline\\\hline \text { Liabilities: } & & \\\hline \text { Accounts payable } & \$ 28,400 & \$ 23,700 \\\hline \text { Income taxes payable } &1,050 & 1,200 \\\hline \text { Total liabilities } & \$ 29,450 & \$ 24,900 \\\hline \text { Equity: } & \\\hline \text { Common stock } & \$ 106,000 & \$ 106,000 \\\hline \text { Paid-in Capital in Excess of Par.......... } & 18,000 & 18,000 \\\hline \text { Retained earnings } &\underline{124,000}&\underline{114,000} \\\hline \text { Total equity } & \underline{\$ 248,200 }&\underline{ \$ 238,000 }\\\hline \text { Total liabilities and equity } & \underline{\$ 277,650 }&\underline{ \$ 262,900} \\\hline\end{array}\end{array}$

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Definitions:

Cash Flows

The total amount of money being transferred into and out of a business, affecting the organization's liquidity, financial health, and operational capabilities.

Marketable Securities

Financial assets that can be quickly converted into cash at a known price.

Capacity

The maximum amount that something can contain or produce.

Projected Cash Flows

This refers to the forecasted movement of money in and out of a business over a specific period, helping to estimate its financial health and operational viability.