Moore Company's net income last year was $56,000 and cash dividends declared and paid to the company stockholders was $31,000.Changes in selected balance sheet accounts for the year appear below: Based solely on this information,the net cash flows from operating activities under the indirect method on the statement of cash flows would be

Question

Moore Company's net income last year was $56,000 and cash dividends declared and paid to the company stockholders was $31,000.Changes in selected balance sheet accounts for the year appear below:  Based solely on this information,the net cash flows from operating activities under the indirect method on the statement of cash flows would be

Quizplus · Accepted Answer

The net cash flows from operating activities can be calculated using the indirect method. The first step is to adjust the net income for non-cash items and changes in operating assets and liabilities.

Starting with net income of $56,000, we need to add back any non-cash expenses, such as depreciation or amortization, which are not included in net income. There is no information provided about such expenses, so we assume there were none.

Next, we need to adjust for changes in operating assets and liabilities. Looking at the changes in selected balance sheet accounts, we see that accounts receivable decreased by $18,000, merchandise inventory decreased by $12,000, and accounts payable increased by $14,000. These are all changes in working capital accounts that affect operating cash flows.

To calculate the change in cash flows for each account, we need to use the following formulas:

Change in accounts receivable = Ending accounts receivable - Beginning accounts receivable
= $22,000 - $40,000
= -$18,000 (negative means cash was received)

Change in merchandise inventory = Ending inventory - Beginning inventory
= $35,000 - $23,000
= -$12,000 (negative means cash was used)

Change in accounts payable = Ending accounts payable - Beginning accounts payable
= $44,000 - $30,000
= $14,000 (positive means cash was used)

Now, we can add these changes to net income to get the net cash flows from operating activities:

Net cash flows from operating activities = Net income + Changes in operating assets and liabilities
= $56,000 - $18,000 - $12,000 + $14,000
= $40,000

Finally, we need to subtract cash dividends paid to get the final answer:

Net cash flows from operating activities = $40,000 - $31,000
= $9,000

Therefore, the correct answer choice is D) $83,000.

Moore Company's Net Income Last Year Was $56,000 and Cash