(Learning Objective 1: Linking accrual accounting and cash flows) Cherokee Corporation earned revenues of $35 million during 20X1 and ended the year with net income of $8 million. During 20X1, Cherokee collected $33 million from customers and paid cash for all of its expenses plus an additional $1 million for amounts payable at December 31, 20X0. Answer these questions about Cherokee’s operating results, financial position, and cash flows during 20X1:
1. How much were Cherokee’s total expenses? Show your work.
2. Identify all the items that Cherokee will report on its 20X1 income statement. Show each amount.
3. Cherokee began 20X1 with receivables of $4 million. All sales are on account. What was the company’s receivables balance at the end of 20X1? Identify the appropriate financial statement, and show how Cherokee will report ending receivables in the 20X1 annual report.
4. Cherokee began 20X1 owing accounts payable of $9 million. All expenses are increased on account. During 20X1 Cherokee paid $28 million on account. How much in accounts payable did the company owe at the end of the year? Identify the appropriate financial statement and show how Cherokee will report accounts payable in its 20X1 annual report.