Question

Accounts receivable arising from sales to customers amounted to $120,000 and $105,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $407,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is: a) $407,000 b) $512,000, c) $422,000, d) $392,000

Answer 1

The answer is 422,000.

Step-by-step explanation:

The cash flow from operating activities is equal to Net income minus changes in working capital. Working capital (WC) is defined as Current assets minus Current Liabilities. Changes in working capital is defined as WC at end of the year minus WC at the beginnig of the year.

If the only change in Current assets is the disminution of accounts receivable, then the WC also decreases in that amount. So, the changes in WC is $105,000 - $120,000 = $(15,000).

The the cash flow from operating activities is
`$ 407,000 - $ (15,000) = 407,000 + 15,000 = 422,000`