Tracy Company reports the following in its statement of cash flows:
$\begin{array}{lr}
\text { Net income } & \$ 1,000 \
\text { Depreciation and amortization } & 350 \
\text { Decrease (Increase) in accounts receivable } & (10) \
\text { Decrease (Increase) in inventory } & 200 \
\text { Decrease (Increase) in prepaid expenses } & 80 \
\text { Increase (Decrease) in trade payables } & (300) \
\text { Increase (Decrease) in taxes payable } & 75 \
\text { Cash flow from operations } & \$ 1.395
\end{array}$

-If Tracy shows depreciation expense of $275 in its income statement, cash paid for amortization is:
A)$0
B)$75
C)$525
D)not determinable

Question

Tracy Company reports the following in its statement of cash flows:
 $\begin{array}{lr}
\text { Net income } & \$ 1,000 \
\text { Depreciation and amortization } & 350 \
\text { Decrease (Increase) in accounts receivable } & (10) \
\text { Decrease (Increase) in inventory } & 200 \
\text { Decrease (Increase) in prepaid expenses } & 80 \
\text { Increase (Decrease) in trade payables } & (300) \
\text { Increase (Decrease) in taxes payable } & 75 \
\text { Cash flow from operations } & \$ 1.395
\end{array}$

-If Tracy shows depreciation expense of $275 in its income statement, cash paid for amortization is:
A)$0
B)$75
C)$525
D)not determinable

Quizplus · Accepted Answer

Depreciation and amortization are two different things. Depreciation is the decrease in value of an asset over time, whereas amortization is the process of expensing the cost of an intangible asset over its useful life. Since Tracy only reports depreciation and not amortization, we can assume that the company did not have any intangible assets that needed to be amortized. Therefore, the cash paid for amortization is zero.

Tracy Company Reports the Following in Its Statement of Cash