Question

The accounting records of EZ Company provided the data below. Net income $64,250 13,750 Depreciation expense Increase in inventory 4,875 3,575 Decrease in salaries payable Decrease in accounts receivable 6,500 Amortization of patent 1,025 6,925 Amortization of premium on bonds Increase in accounts payable Cash dividends paid 10,750 19,500 Prepare a reconciliation of net income to net cash flows from operating activities. (Amounts to be deducted should be indicated with a minus sign.) RECONCILIATION OF NET INCOME TO NET CASH FLOWS FROM OPERATING ACTIVITIES Cash flows from operating activities: Adjustments for noncash effects: Changes in operating assets and liabilities: Net cash flows from operating activities $ 0

Answer 1

To prepare the reconciliation of net income to net cash flows from operating activities, we need to analyze the provided data and make adjustments for noncash effects and changes in operating assets and liabilities.

Given the provided data, let's calculate the net cash flows from operating activities:

Net Income: $64,250

Adjustments for Noncash Effects:

Depreciation Expense: $13,750

Amortization of Patent: $1,025

Amortization of Premium on Bonds: $6,925

Net noncash adjustments: ($13,750 + $1,025 + $6,925) = $21,700

Changes in Operating Assets and Liabilities:

Increase in Inventory: -$4,875

Decrease in Salaries Payable: -$3,575

Decrease in Accounts Receivable: $6,500

Increase in Accounts Payable: $10,750

Cash Dividends Paid: -$19,500

Net changes in operating assets and liabilities: ($4,875 - $3,575 + $6,500 + $10,750 - $19,500) = -$9725

Finally, we calculate the net cash flows from operating activities:

Net Cash Flows from Operating Activities = Net Income + Net noncash adjustments + Net changes in operating assets and liabilities

Net Cash Flows from Operating Activities = $64,250 + $21,700 - $9725

Net Cash Flows from Operating Activities = $79425 - $9725

Net Cash Flows from Operating Activities = $69700

Therefore, the reconciliation of net income to net cash flows from operating activities is as follows:

RECONCILIATION OF NET INCOME TO NET CASH FLOWS FROM OPERATING ACTIVITIES

Cash flows from operating activities:

Adjustments for noncash effects: $21,700

Changes in operating assets and liabilities: -$9725

Net cash flows from operating activities: $69,700