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: $\begin{array}{lrr}
& \text { End } & \text { Beginning } \
\text { Cash } & \$ 50,000 & \$ 60,000 \
\text { Accounts receivable } & 112,000 & 108,000 \
\text { Inventories } & 105,000 & 93,000 \
\text { Prepaid expenses } & 4,500 & 6,500 \
\text { Accounts payable (merchandise creditors) } & 75,000 & 89,000
\end{array}$
What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method?
A) $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: $\begin{array}{lrr}
 & \text { End } & \text { Beginning } \
\text { Cash } & \$ 50,000 & \$ 60,000 \
\text { Accounts receivable } & 112,000 & 108,000 \
\text { Inventories } & 105,000 & 93,000 \
\text { Prepaid expenses } & 4,500 & 6,500 \
\text { Accounts payable (merchandise creditors) } & 75,000 & 89,000
\end{array}$ 
 What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method?
A) $198,000
B) $324,000
C) $352,000
D) $296,000

Quizplus · Accepted Answer

To calculate cash flows from operating activities using the indirect method, start with net income ($275,000) and adjust for non-cash expenses and changes in working capital. Add back depreciation ($40,000) and amortization ($9,000). Adjust for changes in current assets and liabilities: decrease in cash ($10,000), increase in accounts receivable ($4,000), increase in inventories ($12,000), decrease in prepaid expenses ($2,000), and decrease in accounts payable ($14,000). The calculation is: $275,000 + $40,000 + $9,000 - $4,000 - $12,000 + $2,000 - $14,000 = $296,000.

The Net Income Reported on the Income Statement for the Current