Based on the Following Income Statement and Balance Sheet for Montego

question 120

Essay

Based on the following income statement and balance sheet for Montego Bay Corporation,determine the cash flows from operating activities using the direct method.
$\begin{array}{c}\text {MONTEGO BAY CORPORATION}\\\text { Income Statement}\\\text {For Year Ended December 31, 2013}\\ \begin{array}{|l|r|r|}\hline\text { Sales } & & \$ 504,000 \\\hline \text { Cost of goods sold } & 327,600 & \\\hline \text { Depreciation } & 42,000 & \\\hline \text { Other operating expenses } & 125,500 & (495,100) \\\hline \text { Other gains (losses): } & &\\\hline\text {Gain on sale of equipment } & & 7,200 \\\hline \text {Income before taxes} & & 16,100 \\\hline\text { Income tax expense }& &(4,800) \\\hline \text {Net income }& & \$ 11,300 \\ \hline\end{array}\end{array}$

$\begin{array}{c}\text {MONTEGO BAY CORPORATION}\\\text {Balance Sheets}\\\text {At December 31}\\ \begin{array}{|l|r|r|}\hline&2013&2012\\\hline\text { Cash } & \$ 64,650 & \$ 55,800 \\\hline \text { Accounts receivable } & 21,000 & 29,000 \\\hline \text { Inventory } & 58,000 & 52,100 \\\hline \text { Equipment } & 240,000 & 222,000 \\\hline \text { Accumulated depreciation } & (106,000) & (96,000) \\\hline \text { Total assets } & \$ 277,650 & \$ 262,900 \\\hline\\\hline \text { Liabilities: } & & \\\hline \text { Accounts payable } & \$ 28,400 & \$ 23,700 \\\hline \text { Income taxes payable } & \underline{1,050} & \underline{1,200} \\\hline \text { Total liabilities } & \$ 29,450 & \$ 24,900 \\\hline \text { Equity: } & & \\\hline \text { Common stock } & \$ 106,000 & \$ 106,000 \\\hline \text { CC in excess } & 18,000 & 18,000 \\\hline \text { Retained earnings } & 124,200 & 114,000 \\\hline \text { Total equity } & \$ 248,200 & \$ 238,000 \\\hline \text { Total liabilities and equity } & \$ 277,650 & \$ 262,900 \\\hline \end{array}\end{array}$

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Definitions:

Reaction

A process where one or more substances are converted into different substances through the breaking and forming of chemical bonds.

Reaction Product

The materials that result from chemical reactions.

Organic Chemistry

The branch of chemistry that studies the structure, properties, composition, reactions, and synthesis of carbon-containing compounds.

Organic Product

A substance or material originating from living beings or created through chemical processes involving organic compounds.