Question

W.C. Cycling had $55,000 in cash at the year-end 2011 and a $25,000 en cash at year end 2012. The firm invested in property, plant, and equipment totaling $250,000. Cash flow from financing activities totaled $170,000.

a. What was the cash flow from operating activities?

a. 55,000-25,000=30,000
b. Decrease in cash flows: -250,000+170,000+Operating incoming cash=-30,000
c. Operating cash flow = 50,000

b. If accruals increased by $25,000, receivables and inventories increased by $100,000, and depreciation and amortization totaled $10,000, what was the firm’s net income?

a. Net income + 25,000 – 100,000+10,000=50,000
b. Net income=$115,000

Answer 1

1. c. Operating cash flow = 50,000

2. b. Net income=$115,000

Step-by-step explanation:

1. The Cashflow for the year is calculated by adding the balances from the Financing, Investing and Operating Activities in the following manner;

Cash Flow for the year = Opening Balance + Operating Activities + Investing Activities + Financing Activities

Operating Activities = Cash Flow - Opening Balance - Investing Activities - Financing Activities

= 25,000 - 55,000 - (-250,000) - 170,000

= $50,000

2. Net Income is calculated from Operating Activities in the following manner;

Net Income = Operating Cashflow + Increase in Inventory - Increase in Accruals - Depreciation

= 50,000 + 100,000 - 25,000 - 10,000

= $115,000