Using the information presented in Problem 13.4B, prepare a partial statement of cash flows for the current year, showing the
Using the information presented in Problem 13.4B, prepare a partial statement of cash flows for the current year, showing the computation of net cash flows from operating activities using the indirect method. Explain why the increase in accounts receivable over the year was subtracted from net income in computing the cash flows from operating activities.
Reporting Operating Cash Flows by the Direct Method
The following income statement and selected balance sheet account data are available for Royce Interiors, Inc., at December 31, 2015:
ROYCE INTERIORS, INC.
FOR THE YEAR ENDED DECEMBER 31, 2015
Gain on sales of marketable securities
Total revenue and gains
Costs and expenses:
Cost of goods sold
Income tax expense
Total costs and expenses
End of Year
Beginning of Year
Selected account balances:
Accrued interest receivable
Accounts payable (merchandise suppliers)
Accrued operating expenses payable
Accrued interest payable
Accrued income taxes payable
1. Dividend revenue is recognized on the cash basis. All other income statement amounts are recognized on the accrual basis.
2. Operating expenses include depreciation expense of $49,000.
a. Prepare a partial statement of cash flows, including only the operating activities section of the statement and using the direct method. Place brackets around numbers representing cash payments. Show supporting computations for the following:
1. Cash received from customers.
2. Interest and dividends received.
3. Cash paid to suppliers and employees.
4. Interest paid.
5. Income taxes paid.
b. Management of Royce Interiors, Inc., is exploring ways to increase the cash flows from operations. One way that cash flows could be increased is through more aggressive collection of receivables. Assuming that management has already taken all the steps possible to increase revenue and reduce expenses, describe two other ways that cash flows from operations could be increased.