Question

The net income reported on the income statement for the current year was $250,000. Depreciation recorded on fixed assets and amortization of patents for the year were $40,000 and $9,000, respectively. Balances of current asset and current liability accounts at the end and at the beginning of the year are as follows: End Beginning Cash $ 50,000 $ 60,000 Accounts receivable 112,000 108,000 Inventories 105,000 93,000 Prepaid expenses 4,500 6,500 Accounts payable (merchandise creditors) 75,000 89,000 What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method?

Answer 1

To calculate the cash flows from operating activities using the indirect method, adjustments are made to net income by adding back non-cash expenses and accounting for changes in working capital. The resulting cash flow from operating activities for this question is $261,000.

Step-by-step explanation:

To calculate the cash flow from operating activities using the indirect method, we start with the net income and adjust for non-cash expenses and changes in working capital.

Start with the net income: $250,000.

Add back non-cash expenses:

Depreciation: $40,000

Amortization of patents: $9,000

Adjust for changes in working capital:

Decrease in cash: $60,000 - $50,000 = $10,000 (deducted)

Increase in accounts receivable: $112,000 - $108,000 = $4,000 (deducted)

Increase in inventories: $105,000 - $93,000 = $12,000 (deducted)

Decrease in prepaid expenses: $6,500 - $4,500 = $2,000 (added)

Decrease in accounts payable: $89,000 - $75,000 = $14,000 (deducted)

Now we combine all the adjustments with the net income:

$250,000 + $40,000 + $9,000 - $10,000 - $4,000 - $12,000 + $2,000 - $14,000 = $261,000.

The amount of cash flows from operating activities reported on the statement of cash flows is $261,000.

Answer 2

Cash flows from operating activities 271,000

Step-by-step explanation:

net income 250,000

depreciation +40,000

amortization +9,000

Net Income adjusted 299,000

↑AR -4000

↑Inventories -12,000

↓Prepaid Expenses 2000

↓AP -14,000

Changes in working capital -28,000

Cash flows from operating activities 271,000