Question

The following information relates to Kelly Company for 2021.

Sales --> 1,845,000

Cost of Goods Sold --> 1,160,000

Operations expenses & Income taxes --> 365,000

Depreciation of plant assets --> 215,000

Amortization of intangible assets --> 50,000

Increase of Accounts Receivable --> 38,000

Decrease in inventory --> 62,000

Decrease in Accounts Payable --> 30,000

Increase in accrued liabilities --> 8,000

Calculate the 2021 net cash flow from operating activities using the indirect method.You must show your work for full credit.

Answer 1

Answer. Firstly, we need to calculate net income from the given example:

Calculation for determination of net income
Sales revenue	$ 1,845,000
Less: cost of goods sold	$ 1,160,000
Gross profit	$ 685,000
Less: operating expenses and income tax	$ 365,000
Less: depreciation expenses of fixed assets	$ 215,000
Less: amortization expenses of intangible assets	$ 50,000
Net income	$ 55,000

calculation of cash flow from operating activities using the indirect method:

Cash flow from operating income
Net income	$ 55,000
Add back (+) : any non cash expense ( depreciation / amortization expense)	-
+ Depreciation expenses of fixed assets	$ 215,000
+ Amortization expenses of intangible assets	$ 50,000
Add back (+) : any decrease in current assets	-
+ Decrease in inventory	$ 62,000
Add back (+) : any increase in current liabilities	-
+ increase in accrued liabilities	$ 8,000
Minus (-) any increase in current assets	-
- Increase of account receivables	$ 38,000
Minus (-) any decrease in current liabilities	-
- Decrease in account payable	$ 30,000
-	-
Cash flow from operating activities	$ 322,000