Question

Hi-Tech, Inc., reports net income of $65.0 million. Included in that number are depreciation expense of $5.5 million and a loss on the sale of equipment of $1.5 million. Records reveal increases in accounts receivable, accounts payable, and inventory of $2.5 million, $3.5 million, and $4.5 million, respectively. What are Hi-Tech's net cash flows from operating activities?

Answer 1

Answer:

Net Cash Flows from operating activities is $68.5 million.

Explanation:

The indirect Method would be used here because all we will find the cash expenses and revenues that were converted into within the year and are reported in the income statement by calculating the increase and decrease in the current assets and current liabilities. Here we will also eliminate the non cash expense effects by adding them back.

The net cash flows from operating activities can be calculated using the following method:

                                                                 Millions

1. Net Income                                                65

Add Non Cash Deductions

2. Depreciation                                             5.5

3. Loss on sale of Equipment                       1.5

Add / (Less) the increase or

decrease in current Assets or

liabilities

4. Increase in Trade Receivables                (2.5)

5. Increase in Trade Payables                      3.5

6. Increase in inventory                               (4.5)

Net Cash Flows from operating activities $68.5