Question

In: Accounting

During a recent year, the Corp. reported net income of $25,000. The company also reported the...

During a recent year, the Corp. reported net income of $25,000. The company also reported the following activities:

a. Purchased equipment for $6,000 in cash.

b. Issued common stock for $1,000 in cash

c. Depreciation of equipment was $9,000 for the year

More information is presented below.

Current year

Prior year

Assets

Cash and cash equivalents

$84,000

$48,700

Accounts receivable

53,600

50,000

Inventory

39,600

39,000

Prepaid expenses

5,500

15,000

Equipment

206,000

200,000

Accumulated depreciation

(126,700)

(117,700)

Liabilities

Current liabilities

      Accounts payable

$48,000

$49,000

      Accrued liabilities

44,000

42,000

Stockholders’ equity

      Common stock

10,000

9,000

      Retained earnings

160,000

135,000

Q: Compute cash flows from operating activities?

Solutions

Expert Solution

Ans. Particulars Amount Amount
Cash flow from operating activities:
Net income $25,000
Adjustments to reconcile Net income to Net cash
provided by Operating Activities:
Add: Depreciation expense $9,000
Less: Increase in accounts receivables -$3,600
Less: Increase in inventory -$600
Add: Decrease in prepaid expenses $9,500
Less: Decrease in accounts payable -$1,000
Add: Increase accrued liabilities $2,000 $15,300
Net cash from operating activities $40,300
*Calculations for Change in balance:
Accounts receivable = $53,600 - $50,000 = $3,600 (increase)
Inventory = $39,600 - $39,000 = $600 (increase)
Prepaid expenses = $5,500 - $15,000 = -$9,500 (decrease)
Accounts payable = $48,000 - $49,000 = -$1,000 (decrease)
Accrued liabilities   = $44,000 - $42,000 = $2,000 (increase)
*Decrease in current liabilities and Increase in current assets other than cash is deducted from Net Income.
*Increase in current liabilities and Decrease in current assets other than cash is added to Net Income.
*Non cash & Non operating expenses are added to Net income.
*Non cash & Non operating income are deducted from Net income.

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