Question

Use the following information to perform the calculations below (using the indirect method).

Net income $650,000 Beginning accounts payable $121,000
Depreciation expense 96,000 Ending accounts payable 159,000
Beginning accounts receivable 423,200 Purchase of long-term assets 610,000
Ending accounts receivable 446,000 Issuance of long-term debt 263,000
Beginning inventory 520,000 Issuance of stock for cash 188,000
Ending inventory 577,000 Issuance of stock for long-term assets 113,000
Beginning prepaid insurance 41,600 Purchase of treasury stock 67,500
Ending prepaid insurance 50,000 Sale of long-term investment at cost 57,500

Required:
a. Calculate the amount of cash flows from operating activities.
b. Calculate the amount of cash flows from investing activities.

Answer 1

a) cash flow from operating activities

net income $650,000

adjustments:

depreciation expense $96,000

accounts payable $38,000

accounts receivable -$22,800

inventory -$57,000

prepaid insurance -$8,400

net cash flow from operating activities $695,800

b) cash flow from investing activities

Sale of long term investments $57,500

Purchase of long term assets -$610,000

Long term assets exchanged for common stocks $113,000

net cash flow from investing activities -$439,500