Below is an example of an incorrectly prepared statement of cash flows. The descriptions of activities are correct. $\begin{array}{l}
\text { Cash from operating activities }\
\begin{array}{lr}
\text { Net income } & \$ 60,000 \
\text { Depreciation } & (4,000) \
\text { Increase in accounts receivable } & (2,000) \
\text { Increase in deferred tax liability } & (1,000)\
&\$53,000\
\
\text { Cash from investing activities } &\
\text { Purchase of marketable securities} &(\$48,000)\
\text {Dividends paid } &(\$46,5000)\
\
\text { Cash from financing activities } & \
\text { Increase in short-term debt } & \$(500) \
\text { Increase in long-term debt } & (2,500) \
& \$(3,000) \
\text { Increase in cash } & \$ 3,500

\end{array}
\end{array}$
-The correct cash flows from operating activities is:
A)$65,500.
B)$63,500.
C)$53,500.
D)None of the above

Question

Below is an example of an incorrectly prepared statement of cash flows. The descriptions of activities are correct. $\begin{array}{l}
\text { Cash from operating activities }\
\begin{array}{lr}
\text { Net income } & \$ 60,000 \
\text { Depreciation } & (4,000) \
\text { Increase in accounts receivable } & (2,000) \
\text { Increase in deferred tax liability } & (1,000)\
&\$53,000\
\
  \text { Cash from investing activities } &\
 \text {  Purchase of marketable securities} &(\$48,000)\
 \text {Dividends paid  } &(\$46,5000)\
\
\text { Cash from financing activities } & \
\text { Increase in short-term debt } & \$(500) \
\text { Increase in long-term debt } & (2,500) \
& \$(3,000) \
\text { Increase in cash } & \$ 3,500

\end{array}
\end{array}$
-The correct cash flows from operating activities is:
A)$65,500.
B)$63,500.
C)$53,500.
D)None of the above

Quizplus · Accepted Answer

The net increase in accounts receivable should be subtracted from net income to arrive at cash flows from operating activities. In the incorrectly prepared statement, the net increase in accounts receivable was added instead, resulting in an overstatement of cash flows from operating activities. Therefore, the correct cash flows from operating activities is less than what was reported in the incorrect statement. Option B is the closest to the correct cash flow amount.

Below Is an Example of an Incorrectly Prepared Statement of Cash