Question

Corporation accountants assembled the following data for the year ended December 10,2018:

ATTERA CORPORATION
December 31	2018	2017
Current assets:
Cash and cash equivalents	$78,700	$28,000
Accounts receivable	69,600	64,200
Inventory	79,500	84,400
Current liabilities:
Accounts payable	$58,700	$55,700
Income tax payable	13,900	16,900

Transaction Data for 2018:
Net income	$58,000
Purchase of treasury stock	15,100
Issuance of common stock for cash	36,800
Loss on sale of equipment	9,000
Payment of cash dividends	18,500
Depreciation expense	21,000
Issuance of long-term note payable in exchange for cash	30,000
Purchase of building for cash	127,000
Sale of equipment for cash	57,000

Required: Prepare Corporation's statement of cash flows and explain why do you add back depreciation to cash flow statement?

Answer 1

ATTERA CORPORATION
Statement of Cash flows
Year Ended December 31, 2018
Cash flows from Operating activities:
Net income		58,000
Adjustments to reconcile net income to net cash provided by operating activities :
Depreciation	21,000
Loss on sale of equipment	9,000
Increase in Accounts Receivable	-5,400
Decrease in Inventory	4,900
Increase in Accounts Payable	3,000
Decrease in Income tax payable	-3,000
		29,500
Net cash provided by operating activities		87,500
Cash flow form Investing activities
Purcahse of building for cash	-1,27,000
Sale of equipment for cash	57,000
Net cash used for investing activities		-70,000
Cash flow from Financing Activities
Issuance of Common stock for cash	36,800
Purchase of treasury stock	-15,100
Issuance of long term note payable in exchange for cash	30,000
Payment of cash dividends	-18,500
Net cash provided by financing activities		33,200
Net cash generated during the year		50,700
Cash at the beginning of the year		28,000
Cash at the end of the year		78,700

Depreciation is a non-cash expense, so it should be add back to net income in cash flow from operating activities.