Question

The financial statements of Simon Co. include the following items (amounts in thousands): Income Statement For the Year Ended December 31, 2020 Net income $ 840 Depreciation and amortization expense 640 At December 31 Balance Sheets 2020 2019 Accounts receivable $ 250 $ 340 Inventory 340 300 Accounts payable 160 180 Income taxes payable 100 30 Required: a. Calculate the net cash flow provided by operations for Simon Co. for the year ended December 31, 2020. (Enter your answer in thousands. (i.e., 20,000 should be entered as 20)) b. Net income and cash flows provided by operations may differ because of the timing of cash receipts and payments versus the timing of recognition on the income statement.
a.True
b.False

Answer 1

Answer:

(a) Net cash flow provided by operations for Simon Co. for the year ended December 31, 2020 is $1,580.

(b) The correct answer is Option A.

Explanation:

(a) Preparation of statement of cash flows extract

Simon Co.

Statement of Cash Flows (extract) for the Year Ended December 31, 2020

Net income                                                                 $840

Add: Depreciation and amortization expense           640

        Decrease in Accounts receivable                        90

        Increase in Income taxes payable                       70

Less: Increase in Inventory                                           40

         Decrease in Accounts payable                           20

Net cash flows from operating activities            $1,580

(b) The difference is mainly from timing and recognition. The cash flows from operations is a valuable tool used by investors to evaluate a company's financial strength. This section of the cash flows is regarded as the cash version of net income as non-cash items are added back to net income and it also considers changes in working capital, including current assets and current liabilities.