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Question: (SCF鈥擠irect Method) Los Lobos Corp. uses the direct method to prepare its statement of cash flows. Los Lobos鈥檚 trial balances at December 31, 2017 and 2016, are as follows.

Debits	December 31
	2017	2016
Cash	\(35,000	\)32,000
Accounts receivables	33,000	30,000
Inventory	31,000	47,000
Property, plant and equipment	100,000	95,000
Unamortized bond discount	4,500	5,000
Cost of goods sold	250,000	380,000
Selling expenses	141,500	172,000
General and administration expenses	137,000	151,300
Interest expenses	4,300	2,600
Income tax expenses	20,400	61,200
	\(756,700	\)976,100

Credits	December 31
	2017	2016
Allowance for doubtful accounts	\(1,300	\)1,100
Accumulated depreciation 鈥� Plant assets	16,500	15,000
Account payable	25,000	15,500
Income tax payable	21,000	29,100
Deferred tax liability	5,300	4,600
8% callable bonds payable	45,000	20,000
Common stock	50,000	40,000
Paid-in-capital in excess of par	9,100	7,500
Retained earnings	44,700	64,600
Sales revenue	538,800	778,700
	\(756,700	\)976,100

Additional information:

1. Los Lobos purchased \(5,000 in equipment during 2017.

2. Los Lobos allocated one-third of its depreciation expense to selling expenses and the remainder to general and administrative expenses.

3. Bad debt expense for 2017 was \)5,000, and write-offs of uncollectible accounts totalled $4,800.

Instructions

Determine what amounts Los Lobos should report in its statement of cash flows for the year ended December 31, 2017, for the following items.

(a) Cash collected from customer	(d) Cash paid for income tax
(b) Cash paid to suppliers	(e) Cash paid for selling expenses
(c) Cash paid for interest

Step by step solution

01

Definition of Statement of Cash Flow

The schedule prepared by the business entity for providing a summary of all the transactions, including cash payments and receipts, is known as the statement of cash flow.

02

Calculation of cash collected from customers

Particular	Amount $
Sales revenue	$538,800
Less: uncollectible written off	(4,800)
Less: Increase in accounts receivables($33000-$3000)	(3,000)
Cash collected from the customers	$531,000

03

 Step 3: Calculation of cash paid to suppliers

Particular	Amount $
Purchases	$234,000
Less: increase in accounts payable($25000-$15500)	(9,500)
Cash paid to suppliers	$224,500

Working note: Calculation of purchases

Particular	Amount $
Cost of goods sold	$250,000
Less: Decrease in inventory($47000-$31000)	(16,000)
Purchases	$234,000

04

Calculation of cash paid for interest

Particular	Amount $
Interest expenses	$4,300
Less: Decrease in unamortized discount ($5000-$4500)	(5,00)
Cash paid for interest	$3,800

05

Calculation of cash paid for income tax

Particular	Amount $
Income tax expenses	$20,400
Less: Increase in deferred tax liability ($5300-$4600)	(700)
Add: Decrease in income tax payable ($29100-$21000)	8,100
Cash paid for income tax	$27,800

06

Calculation of cash paid for selling expenses

Particular	Amount $
Selling expenses	$141,500
Less: Depreciation expenses	(500)
Less: Bad debt expenses$\left(\frac{\$16,500-\$15,000}{3}\right)$	(5,000)
Cash paid for selling expenses	$136,000

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