How to Calculate Operating Cash Flows Using the Direct Method Exhibit 14.2 (p. 795) showed the following information on current assets and liabilities for Lemmons Company: Net Changes 20X1 20X2 Debit Credit Current assets Accounts receivable $ 140000 $ 112500 $27500 Inventories 50000 60000 $10000 Current liabilities Accounts payable 120000 95000 25000 The income statement for Lemmons follows: Lemmons Company Income Statement For the Year Ended December 31, 20X2 Revenues $480,000 Gain on sale of equipment 20,000 Cost of goods sold (260,000) Depreciation expense (50,000) Interest expense (10,000) Net income $180,000 Required: Calculate operating cash flows using the direct method.

Cash Flows Adjustments Income Statement $ 507500 $ 27500[latex]a[/latex] $ 480000 Revenues (20000) 20000 Gain on sale of equipment (25000)[latex]^b[/latex] (260000) Cost of goods sold 295000 (10000)[latex]^c[/latex] 50000 (50000) Depreciation expense (10000) (10000) Interest expense $ 180,000 Net income $ 202,500 Net cash from operating activities [latex]^a[/latex]Decrease in accounts receivable. [latex]^B[/latex]Decrease in accounts payable. [latex]^C[/latex]Increase in inventories.

Question 14.7: How to Calculate Operating Cash Flows Using the Direct Metho...

Managerial Accounting The Cornerstone of Business Decision-Making

How to Calculate Operating Cash Flows Using the Direct Method
Exhibit 14.2 (p. 795) showed the following information on current assets and liabilities for Lemmons Company:

			Net Changes
	20X1	20X2	Debit	Credit
Current assets
Accounts receivable	$ 140000	$ 112500		$27500
Inventories	50000	60000	$10000
Current liabilities
Accounts payable	120000	95000	25000

The income statement for Lemmons follows:

Lemmons Company Income Statement For the Year Ended December 31, 20X2
Revenues	$480,000
Gain on sale of equipment	20,000
Cost of goods sold	(260,000)
Depreciation expense	(50,000)
Interest expense	(10,000)
Net income	$180,000

Required:
Calculate operating cash flows using the direct method.

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