Question

Ramakrishnan, Inc., reported 2021 net income of $45 million and depreciation of $2,950,000. The top part of Ramakrishnan, Inc.’s, 2021 and 2020 balance sheets is reproduced below (in millions of dollars): 2021 2020 2021 2020 Current assets: Current liabilities: Cash and marketable securities $ 50 $ 17 Accrued wages and taxes $ 31 $ 26 Accounts receivable 85 83 Accounts payable 95 90 Inventory 173 126 Notes payable 90 85 Total $ 308 $ 226 Total $ 216 $ 201

Calculate the 2021 net cash flow from operating activities for Ramakrishnan, Inc. (Enter your answer in dollars not in millions.)

Answer 1

In calculating the cash flows from operating activities from indirect method, we will start with the net income. We will add back the non cash item of depreciation in it. Then we will adjust the amount for increase or decrease in cash due to increase or decrease in current assets or current liabilities.Like, an increase in current assets will reduce cash, so we will deduct it and a decrease in current assets will increase cash, so we will add it. Similarly, an increase in current liabilities will increase cash, so it will be added and a decrease in current liabilities will reduce cash, so it will be deducted.

Cash flow statement (partial) for the year ended 2021:

Description	Amount	Amount
Net income	$45000000
Adjustments to reconcile net income to net cash from operating activities
Add: Depreciation expense	$2950000
Less: Increase in accounts receivables	($2000000)
Less: Increase in inventory	($47000000)
Add: Increase in accrued wages and taxes	$5000000
Add: Increase in accounts payable	$5000000
Add: Increase in notes payable	$5000000
Net cash flows from operating activities		$13950000