In: Accounting
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?
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. |