The net income reported on the income statement for the current year was $310,000.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: $$\begin{array} { l r r }
& \underline { \text { End } } & \text { Beginning } \
\text { Cash } & \$ 50,000 & \$ 60,000 \
\text { Accounts receivable } & 112,000 & 108,000 \
\text { Inventories } & 105,000 & 93,000 \
\text { Prepaid expenses } & 4,500 & 6,500 \
\text { Accounts payable (merchandise creditors) } & 75,000 & 89,000
\end{array}$$ What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method?
A) $233,000
B) $289,000
C) $387,000
D) $331,000

Question

The net income reported on the income statement for the current year was $310,000.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: $$\begin{array} { l r r } 
& \underline { \text { End } } & \text { Beginning } \
\text { Cash } & \$ 50,000 & \$ 60,000 \
\text { Accounts receivable } & 112,000 & 108,000 \
\text { Inventories } & 105,000 & 93,000 \
\text { Prepaid expenses } & 4,500 & 6,500 \
\text { Accounts payable (merchandise creditors) } & 75,000 & 89,000
\end{array}$$ What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method?
A) $233,000
B) $289,000
C) $387,000
D) $331,000

Quizplus · Accepted Answer

To calculate cash flows from operating activities using the indirect method, start with net income and adjust for non-cash expenses and changes in working capital. Net income is $310,000. Add back non-cash expenses: Depreciation ($40,000) + Amortization ($9,000) = $49,000. Adjust for changes in working capital: Decrease in Cash (not considered in operating activities), Increase in Accounts Receivable ($112,000 - $108,000 = -$4,000), Increase in Inventories ($105,000 - $93,000 = -$12,000), Decrease in Prepaid Expenses ($6,500 - $4,500 = $2,000), Decrease in Accounts Payable ($75,000 - $89,000 = -$14,000). The total adjustments for changes in working capital are -$28,000. Therefore, cash flows from operating activities = $310,000 + $49,000 - $28,000 = $331,000.

The Net Income Reported on the Income Statement for the Current