Wessen Company reports net income of $180,000 for the year ended December 31,2010.It also reports $45,800 depreciation expense,$21,410 amortization expense and a $15,000 gain on the sale of machinery.Its comparative balance sheets reveal a $28,300 increase in accounts receivable,$20,400 decrease in accounts payable,$10,470 increase in prepaid expenses,and $33,140 decrease in wages payable.What is the net cash flows provided (used)by operating activities using the indirect method?
A)($140,200)
B)$133,490
C)$139,900
D)($133,490)
E)$78,300

Question

Wessen Company reports net income of $180,000 for the year ended December 31,2010.It also reports $45,800 depreciation expense,$21,410 amortization expense and a $15,000 gain on the sale of machinery.Its comparative balance sheets reveal a $28,300 increase in accounts receivable,$20,400 decrease in accounts payable,$10,470 increase in prepaid expenses,and $33,140 decrease in wages payable.What is the net cash flows provided (used)by operating activities using the indirect method? 
A)($140,200)
B)$133,490
C)$139,900
D)($133,490)
E)$78,300

Quizplus · Accepted Answer

The net cash flows from operating activities are calculated by adjusting net income for non-cash expenses and changes in working capital. Starting with net income of $180,000, add back non-cash expenses: $45,800 (depreciation) and $21,410 (amortization). Subtract the gain on sale of machinery: $15,000. Adjust for changes in working capital: subtract increases in accounts receivable ($28,300) and prepaid expenses ($10,470), and subtract decreases in accounts payable ($20,400) and wages payable ($33,140). The result is $139,900.

Wessen Company Reports Net Income of $180,000 for the Year