An analyst gathered the following information. Net Sales - $ 4,000 Dividends Declared - 170 Cost of goods sold - 2,000 Other cash expenses for inputs - 500 Long-term debt principal repayment - 250 Cash tax payments - 200 Purchase of new equipment - 300 Inventroy increased by - 100 Accounts payable increased - 300 Depreciation expense - 75 The company’s cash flow from operations is: A $1,200 B 1,500 C 1,405 D 1,575 I can’t come up to the right answer… If you know it, please help.
CFO using the direct method: Step 1: Revenues (4000) +/- Decrease(increase) in accounts receivables (0, no information) =Cash collected from customers Step 2: +Cash investment income (0, no information) Step 3: COGS (-2000) +/- Increase(decrease) in inventory (-100) +/- Decrease(increase) in accounts payable (+300) =Cash paid to suppliers Step 4: Salaries and wags expense(0, no information) +/- Decrease(increase) in wages payable(0, no information) = Cash paid to employees(0, no information) Step 5: Other operating expenses (-500) +/- Increase(decrease) in prepaid expenses(0, no information) +/- Decrease(increase) in accrued liabilities (0, no information) = Cash paid for other operating expenses Step 6: - Cash paid for interest (0, no information) Step 7: -Cash paid for income taxes (-200) = CFO=4000-2000-500-100+300-200=1500 Is it B?
Sales - 4000 Payments to Suppliers = COGS + Increase in Inventory - Increase in A/P =2000+100-300 = 1800 CFO = Sales - Payment to Suppliers - Other cash expenses - cash Tax payments =4000-1800-500-200 = 1500
Calculate the amount of Purchases first. Purchases = COGS + Increase in inventory Purchases = 2,000 + 100 = 2,100 Now calculate how much was actually paid for the inventory in cash versus how much was purchased on credit Cash paid to suppliers = Purchases - Increase in payables = 2,100 - 300 = 1,800 Now take net sales and subtract any expense that affects cash flow from operations (ignore non-cash expenses like depreciation and items that affect cash flow from financing) = Net sales - cash paid to suppliers - other cash expenses for inputs - cash tax payments = 4,000 - 1,800 - 500 - 200 = $1,500 Someone please verify this?
All three of us, same time
The correct answer is B. Thanks a lot guys for explanations.