International Accounting IFRS

Case 5-2

Operating Cash Flows under the Direct Method

As the new controller for Overseas Inc., you have the responsibility of preparing the year-end financial statements for the company for year 20x2. Overseas has a fiscal year end of December 31. You have already completed the balance sheet and income statement, so your final task is to prepare the companys statement of cash flows. Overseas has prepared the operating section of the statement of cash flows using the indirect method, and you wish to maintain consistency in this regard.

Selected financial information from the current-year income statement and comparative balance sheet are as follow:

20x2 Income Statement:

Sales Revenue: $6,000,000

Cost of Goods Sold: (4,000,000)

Other Operating Expenses (85,000)

Depreciation and Amortization: (100,000)

Gain on Sale of Fixed Assets 50,000

Income Tax Expense (200,000)

Net Income: 1,665,000

Balance Sheet:

20x2 20x1

Assets:

Cash and Equivalents 270,000 200,000

Accounts Receivable 400,000 450,000

Inventory 300,000 200,000

Prepaid Insurance 150,000 125,000

Liabilities:

Accounts Payable 75,000 125,000

Income Taxes Payable 20,000 15,000

Other Expenses Payable 30,000 30,000

Note: Other Operating Expenses includes $25,000 insurance expense.

Required:

Prepare the operating cash flows section of the statement of cash flows using the direct method.