Use the Following Income Statement and Information About Selected Current

question 48

Essay

Use the following income statement and information about selected current assets and current liabilities to calculate the net cash provided or used by operating activities using the direct method.
$\begin{array}{c}\text {PETERS COMPANY}\\\text {Income Statement}\\\text {For Year Ended December 31, 2013}\\\begin{array}{|l|r|r|}\hline\text { Sales } & & \$ 180,000 \\\hline \text { Cost of goods sold } & & 104,000 \\\hline \text { Gross profit from sales } & & \$ 76,000 \\\hline \text { Operating expenses: } & \\\hline \text { Salaries and wages expense } & \$ 25,000 \\\hline \text { Depreciation expense } & 5,000 \\\hline \text { Rent expense } & 7,200 \\\hline \text { Interest expense } & 1,900&39,100\\\hline \text { Income from operations } & & \$ 36,900 \\\hline \text { Gain on sale of land } & & \underline{2,000} \\\hline \text { Net income } & & \underline{38,900} \\\hline\end{array}\end{array}$

Selected beginning and ending balances of current asset and current liability accounts,all of which relate to operating activities,are as follows:
$\begin{array}{c} \quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\text { Balance } \\ \begin{array}{|l|r|r|}\hline &\text {Dec. 31, 2013} &\text { Dec, 31, 2012} \\\hline \text { Accounts receivable } & \$ 27,600 & \$ 24,000 \\\hline \text { Merchandise inventory } & 18,200 & 20,000 \\\hline \text { Prepaid rent } & 550 & 400 \\\hline \text { Accounts payable } & 27,100 & 31,000 \\\hline \text { Salaries and wages payable } & 10,400 & 9,000 \\\hline \text { Interest payable } & 300 & 250\\\hline\end{array}\end{array}$

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Definitions:

Classified Balance Sheet

A balance sheet that groups together similar items under the headings of assets, liabilities, and equity to enhance the understanding of a company's financial position.

Current Assets

Resources anticipated to be transformed into cash, sold, or used up within a year or throughout the usual operational cycle of the company.

Ending Inventory

The total value of goods available for sale at the end of an accounting period, calculated by adding purchases to beginning inventory and subtracting cost of goods sold.

Net Purchases

The total amount spent on purchases of goods for resale after subtracting any purchase returns, allowances, and discounts.