Question

Pacific, Inc.'s financial information includes the following, with "change" referring to the difference from the prior year (in $ millions): Net Income 27 Change in Accounts Receivable +4 Change in Accounts Payable +1 Change in Inventory +5 Loss on sale of equipment -8 Gain on sale of real estate +4 Change in Retained Earnings +21 Dividends declared and paid +4 Pacific, Inc.'s cash flow from operations (CFO) in millions was:

A. $15.
B. $23.
C. $27.

Answer 1

B. $23.

Step-by-step explanation:

The computation of the cash flow from operations is shown below:

= Net income - Change in Accounts Receivable + Change in Accounts Payable - Change in Inventory + Loss on sale of equipment - Gain on sale of real estate

= $27 million - $4 million + $1 million- $5 million+ $8 million- $4 million

= $ 23 million

The financing activities and investing activities should be excluded from the computation of the cash flow from operations

Answer 2

B. $23

Step-by-step explanation:

As for the information provided we have:

All values in millions:

Net Income = $27

Increase in accounts receivables is deducted under cash flow from operating activities = - $4

Increase in accounts payable is added to cash flow statement = $1

Increase in inventory is deducted from cash flow from operating activities = - $5

Loss on sale of equipment is added back to net income while calculating cash flow from operating activities = $8

Gain on sale of real estate will be deducted from net income = - $4

Change in retained earnings is not reflected on cash flow statement as it is part of stock holder equity statement.

Dividends declared and further paid are part of financing activity.

Therefore, net cash flow from operating activities are as follows:

$27 - $4 + $1 - $5 + $8 - $4 = $23

Correct option is

B. $23