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23 April, 08:26

The net income reported on the income statement for the current year was $295,000. Depreciation recorded on fixed assets and amortization of patents for the year were $40,000 and $5,000, respectively. Balances of current asset and current liability accounts at the end and at the beginning of the year are as follows: End Beginning Cash $ 50,000 $ 60,000 Accounts receivable 112,000 108,000 Inventories 105,000 93,000 Prepaid expenses 4,500 6,500 Accounts payable (merchandise creditors) 75,000 89,000 What is the net cash flow from operating activities reported on the statement of cash flows prepared by the indirect method?

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  1. 23 April, 11:27
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    The Net cash is 302.000

    Explanation:

    To get net cash flow using the indirect method we must make adjustments to the net income.

    With the balance data, we get the decrease or increase of the differents accounts.

    End Beginning Cash $ 50,000 $ 60,000

    Decrease in cash - 10000

    Accounts receivable 112,000 108,000

    Increase in accounts receivable 4000

    Inventories 105,000 93,000

    inventory increased 12000

    Prepaid expenses 4,500 6,500

    decreased Prepaid expenses - 2000

    Accounts payable (merchandise creditors) 75,000 89,000

    accounts payable decreased - 14000

    It depends on the account if it is added or subtracted to net income. Below you will find the added account with a plus (+) and the subtracted ones with a minus (-)

    Net income 295.000

    Adjustment to reconcile the net income to cash

    + Depreciation expense 40.000

    + amortization of patents 5.000

    - Decrease in cash (10.000)

    - Increase in accounts receivable (4.000)

    - inventory increased (12.000)

    + decreased Prepaid expenses 2.000

    - accounts payable decreased (14.000)

    Net cash 302.000
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