Magnolia Company's statement of cash flows showed net cash provided by operating activities of $47, 000 in 2010.Magnolia reported an increase in accounts payable of $6, 000, an increase in inventory of $2, 000, depreciation expense of $3, 000, and dividends paid of $8, 000.Magnolia's net income for 2010 was
A)$48, 000
B)$40, 000
C)$39, 000
D)$32, 000

Question

Quizplus · Accepted Answer

Net income is calculated by adjusting the net cash provided by operating activities for changes in working capital and non-cash expenses. Starting with $47,000, subtract the increase in accounts payable ($6,000), add the increase in inventory ($2,000), and subtract depreciation expense ($3,000). Dividends do not affect net income. This results in a net income of $40,000.

Magnolia Company's Statement of Cash Flows Showed Net Cash Provided