Question 3

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Determining Operating Cash FlowsDirect Method

Sterling Corporations recent comparative balance sheet and income statement follow.

Balance Sheets, December 31	2019	2020	Difference
Assets
Cash and cash equivalents	$ 68,000	$ 67,000	$ (1,000)
Accounts receivable (net)	24,000	34,000	10,000
Inventory	32,000	28,000	(4,000)
Investment, long-term	12,000		(12,000)
Fixed assets	160,000	196,000	36,000
Accumulated depreciation	(96,000)	(78,000)	18,000
Total assets	$200,000	$247,000	$47,000
Liabilities and Stockholders Equity
Accounts payable	38,000	24,000	(14,000)
Bonds payable	20,000	60,000	40,000
Common stock, no-par	100,000	130,000	30,000
Retained earnings	42,000	56,000	14,000
Treasury stock		(23,000)	(23,000)
Total liabilities and stockholders equity	$200,000	$247,000	$47,000

Income Statement, For Year Ended December 31	2020
Sales revenue	$140,000
Cost of goods sold	(84,000)
Gross margin	56,000
Depreciation expense	(10,000)
Other operating expenses	(36,000)
Gain on sale of investments	6,000
Loss on sale of fixed assets	(2,000)
Net income	$14,000

Analysis of selected accounts and transactions

1. Sold fixed assets for cash; cost, $42,000, and two-thirds depreciated.

2. Purchased fixed assets for cash, $18,000.

3. Purchased fixed assets; exchanged unissued bonds of $60,000 (face value and fair value) in payment.

4. Sold the long-term investments for $9,000 cash. Assume carrying value of the investment is equal to its original purchase price.

5. Purchased treasury stock for cash, $23,000.

6. Retired bonds payable at maturity date by issuing common stock, $20,000.

7. Sold unissued common stock for cash, $10,000.

Required

Prepare the operating activities section of the statement of cash flows, using the direct method. Assume there is no bad debt expense.

Note: Use negative signs with amounts for cash outflows.

Cash Flows from Operating Activities
Collections from customers	Answer
Payments to suppliers	Answer
Other operating expenses	Answer
Net cash provided (used) by operating activities	Answer