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Statement of cash flows direct method

I need to prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities using the following information. I can do it using the indirect method, but i get confused with what should be deducted and what should be added.

Assets Dec 31, 2007 Dec 31, 2006

Cash $ 421,900 $ 456,700
Accounts receivable(net) 397,200 365,700
Inventories 658,900 623,100
Investments -0- 175,000
Land 230,000 -0-
Equipment 590,000 450,000
Accumulated depreciation (282,100) (234,500)
$2,015,900 $1,836,000

Liabilities and Stockholders Equity

Accounts payable $471,200 $456,300
Accrued expenses 40,000 45,300
Dividends payable 61,000 58,000
Common stock, $1 par 23,000 20,000
Paid-in capital in excess of par 195,000 120,000
Retained earnings 1,225,700 1,136,400
$2,015,900 $1,836,000

Sales $4,367,800
Cost of merchandise sold 2,532,000
Gross profit 1,835,800

Operating expenses:
Depreciation expense $47,600
Other operating expenses 1,257,9000
Total operating expenses 1,305,500
Operating Income 503,000
other expense
loss on sale of investments 25,000
Income before income tax 505,300
income tax expense 175,000
Net income 330,300

The following information was also taken from the records

a. Equipment and land were acquired for cash
b. There were no disposals of equipment during the year
c. The investments were sold for $150,000 cash
d. The common stock was issued for cash
e. There was a $241,000 debit to retained Earnings for cash dividends declared

Solution Preview

I need to prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities using the following information. I can do it using the indirect method, but i get confused with what should be deducted and what should be added.

Assets Dec 31, 2007 Dec 31, 2006 Difference

Cash $ 421,900 $ 456,700 (34,800)
Accounts receivable(net) 397,200 365,700 31,500
Inventories 658,900 623,100 35,800
Investments -0- 175,000 (175,000)
Land 230,000 -0- 230,000
Equipment 590,000 450,000 140,000
Accumulated depreciation (282,100) ...

Solution Summary

This solution is comprised of a detailed explanation to prepare the statement of cash flows using direct method.

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