Question

The net income reported on the income statement for the current year was $275,000. Depreciation recorded on fixed assets and amortization of patents for the year were $30,000 and $4,000, 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 102,000 108,000 Inventories 88,000 93,000 Prepaid expenses 8,500 6,500 Accounts payable (merchandise creditors) 95,000 89,000 What amount of cash flows from operating activities is reported on the statement of cash flows prepared by the indirect method?

Answer 1

Answer:

$324,000

Explanation:

The preparation of the Cash Flows from Operating Activities - Indirect Method is presented below:

Cash flow from Operating activities

Net income $275,000

Add : Depreciation expense $30,000

Add: Amortization expense $4,000

Add: Decrease in accounts receivable $6,000     ($102,000 - $108,000)

Add: Decrease in inventory $5,000 ($88,000 - $93,000)

Less: Increase in prepaid expenses -$2,000 ($8,500 - $6,500)

Add: Increase in account payable $6,000 ($95,000 - $89,000)

Net Cash flow from Operating activities         $324,000