Walker Company reports net income of $420,000 for the year ended December 31,2010.It also reports $75,600 depreciation expense and a gain of $11,000 on the sale of machinery.Its comparative balance sheets reveal a $33,600 decrease in accounts receivable,$17,220 increase in accounts payable,$9,240 increase in prepaid expenses,and $13,020 increase in wages payable.What is the net cash flows provided (used)by operating activities using the indirect method?
A)($539,200)
B)$300,800
C)$561,200
D)($300,800)
E)$539,200

Question

Quizplus · Accepted Answer

To calculate net cash flows from operating activities using the indirect method, start with net income and adjust for non-cash expenses, gains/losses, and changes in working capital. Starting with net income of $420,000, add back depreciation of $75,600, subtract the gain on sale of machinery of $11,000, and adjust for changes in working capital: add the decrease in accounts receivable of $33,600, add the increase in accounts payable of $17,220, subtract the increase in prepaid expenses of $9,240, and add the increase in wages payable of $13,020. The total is $539,200.

Walker Company Reports Net Income of $420,000 for the Year