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The income statement of Sarasota Company is shown below. SARASOTA COMPANY INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2020 Sales revenue $6,890,000 Cost of goods sold Beginning inventory $1,910,000 Purchases 4,410,000 Goods available for sale 6,320,000 Ending inventory 1,620,000 Cost of goods sold 4,700,000 Gross profit 2,190,000 Operating expenses Selling expenses 460,000 Administrative expenses 700,000 1,160,000 Net income $1,030,000 Additional information: 1. Accounts receivable decreased $350,000 during the year. 2. Prepaid expenses increased $160,000 during the year. 3. Accounts payable to suppliers of merchandise decreased $300,000 during the year. 4. Accrued expenses payable decreased $90,000 during the year. 5. Administrative expenses include depreciation expense of $50,000. Prepare the operating activities section of the statement of cash flows using the direct method.

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Answer:

Cash flow from Operating Activities

Cash Receipts from Customers                    $7,240,000

Cash Paid to Suppliers and Employees     ($ 6,360,000)

Net Cash from Operating Activities                $880,000

Explanation:

Cash Paid to Suppliers and Employees Calculation :

Cost of goods sold                                     4,700,000

Add Selling expenses                                   460,000

Add Administrative expenses                      700,000

Less Depreciation Expense                          (50,000)

                                                                    5,810,000

Decrease in Accounts Payable                    300,000

Increase in Prepaid Expenses                      160,000

Decrease in Accrued Expenses Payable      90,000

Cash Paid to Suppliers and Employees   6,360,000

Cash Receipts from Customers Calculation :

Sales revenue                                         $6,890,000

Add Decrease in Accounts Receivables  $350,000

Cash Receipts from Customers             $7,240,000

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