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 $40,000 and $9,000, respectively. Balances of current asset and current liability accounts at the end and at the beginning of the year are as follows: What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method?
A) $198,000
B) $324,000
C) $352,000
D) $296,000

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 $40,000 and $9,000, respectively. Balances of current asset and current liability accounts at the end and at the beginning of the year are as follows:  What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method?
A) $198,000 
B) $324,000 
C) $352,000 
D) $296,000

Quizplus · Accepted Answer

Calculation of cash flows from operating activities using the indirect method:

Net Income: $275,000
Depreciation: +$40,000
Amortization: +$9,000
Increase in Current Assets:
Accounts Receivable: -$20,000
Inventory: -$28,000
Prepaid Expenses: -$11,000
Increase in Current Liabilities:
Accounts Payable: +$15,000
Accrued Expenses: +$20,000

Net increase in current assets: ($20,000 + $28,000 + $11,000) = $59,000
Net increase in current liabilities: $15,000 + $20,000 = $35,000

Cash Flows from Operating Activities: 
Net Income + Depreciation + Amortization - Increase in Current Assets + Increase in Current Liabilities
= $275,000 + $40,000 + $9,000 - $59,000 + $35,000
= $296,000

Therefore, the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method is $296,000.

The Net Income Reported on the Income Statement for the Current