Brown Company reported the following information for the year 2011: Sales revenue of $280,000; cost of goods sold of $100,000; selling expenses of $40,000; administrative expenses of $35,000; depreciation of $25,000; interest expense of $8,000; and income tax expense of $28,000. All sales were made for cash and all expenses (other than depreciation and bond premium amortization of $2,000) were paid in cash. All current assets and current liabilities remained unchanged. How much cash was provided by operations for Brown Company during 2011?
A) $44,000
B) $69,000
C) $67,000
D) $71,000

Question

Quizplus · Accepted Answer

The cash provided by operations can be calculated using the indirect method of preparing the statement of cash flows. Starting with net income of $84,000 ($280,000 - $100,000 - $40,000 - $35,000 - $25,000 - $8,000 - $28,000), we add back non-cash expenses (depreciation of $25,000) and subtract any changes in current assets and liabilities. Since all current assets and liabilities remained unchanged, there is no adjustment required in this case. Therefore, the cash provided by operations is $84,000 + $25,000 = $109,000. However, $2,000 of amortized bond premium is not included in net income and needs to be added back. Hence, the final cash provided by operations is $109,000 + $2,000 = $111,000. To find the cash used for bond premium amortization, you would subtract $2,000 from this amount, resulting in $109,000. However, the question only asks for the cash provided by operations, not the cash used for bond premium amortization. Therefore, the correct answer is C) $67,000.

Brown Company Reported the Following Information for the Year 2011