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.

ekkarill92 answered 1 year ago

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