Question

Bird Brain Co. reported net income of $46,300 for the year ended December 31, 2018. January 1 balances in accounts receivable and accounts payable were $23,800 and $24,500 respectively. Year-end balances in these accounts were $21,600 and $28,100, respectively. Assuming that all relevant information has been presented (i.e., there are no other operating cash flows), Bird Brain's cash flows from operating activities would be:
a. $47,700.
b. $46,300.
c. $44,900.
d. $52,100.

Answer 1

Answer:

d. $52,100

Explanation:

Operating activities: It includes those transactions which affect the working capital after net income. The increase in current assets and a decrease in current liabilities would be deducted whereas the decrease in current assets and an increase in current liabilities would be added.  

These changes in working capital would be adjusted. Moreover, the depreciation expense is added to the net income

The preparation of the Cash Flows from Operating Activities—Indirect Method is shown below:

Cash flow from Operating activities - Indirect method

Net income $46,300

Adjustment made:

Add: Decrease in accounts receivable $2,200 ($23,800 - $21,600)

Add: Increase in accounts payable $3,600     ($24,500 - $28,100)

Total of Adjustments $5,800

Net Cash flow from Operating activities                  $52,100