Relevant account balances for Martinez Corporation are:
$\begin{array}{lrr}
&12/31/17&1/01/17\
\text { Accounts receivable } & \$ 18,000 & \$ 14,000 \
\text { Inventory } & 24,000 & 26,000 \
\text { Prepaid insurance } & 1,500 & 2,100 \
\text { Accounts payable } & 25,000 & 26,000
\end{array}$

$\underline{\text { Income information for } 2017}$
$\begin{array}{l}
\text { Revenue } &&\$120,000\
\text { Cost of goods sold } & \$ 60,000 \
\text { Insurance expense } & 6,000 \
\text { Operating expenses } & 18,000 \
\text { Depreciation } &\underline{ 10,000}&\underline{94,0000} \
\text { Net income }&&\underline{\$26,000}
\end{array}$
How much is Martinez's cash flows from operations for 2017?

Question

Relevant account balances for Martinez Corporation are:
$\begin{array}{lrr}
&12/31/17&1/01/17\
\text { Accounts receivable } & \$ 18,000 & \$ 14,000 \
\text { Inventory } & 24,000 & 26,000 \
\text { Prepaid insurance } & 1,500 & 2,100 \
\text { Accounts payable } & 25,000 & 26,000
\end{array}$

$\underline{\text { Income information for } 2017}$
$\begin{array}{l}
\text { Revenue } &&\$120,000\
\text { Cost of goods sold } & \$ 60,000 \
\text { Insurance expense } & 6,000 \
\text { Operating expenses } & 18,000 \
\text { Depreciation } &\underline{ 10,000}&\underline{94,0000} \
\text { Net income }&&\underline{\$26,000}
\end{array}$
How much is Martinez's cash flows from operations for 2017?

Quizplus · Accepted Answer

To calculate the cash flows from operations for Martinez Corporation for 2017, we start with the net income and adjust for changes in working capital and non-cash expenses:1. **Start with Net Income**: $26,0002. **Adjust for Non-Cash Expenses**:   - Add back Depreciation: $10,0003. **Adjust for Changes in Working Capital**:   - Increase in Accounts Receivable: $(18,000 - 14,000) = -$4,000 (use of cash)   - Decrease in Inventory: $(26,000 - 24,000) = $2,000 (source of cash)   - Decrease in Prepaid Insurance: $(2,100 - 1,500) = $600 (source of cash)   - Decrease in Accounts Payable: $(26,000 - 25,000) = -$1,000 (use of cash)**Calculation**:$$ \text{Net Income} + \text{Depreciation} + (\text{Decrease in Inventory}) + (\text{Decrease in Prepaid Insurance}) - (\text{Increase in Accounts Receivable}) - (\text{Decrease in Accounts Payable}) $$$$ = 26,000 + 10,000 + 2,000 + 600 - 4,000 - 1,000 $$$$ = 33,600 $$Therefore, Martinez's cash flows from operations for 2017 is $33,600.

Relevant Account Balances for Martinez Corporation Are Income information for 2017‾\underline{\text { Income information for } 2017} Income information for 2017​

Relevant Account Balances for Martinez Corporation Are $\underline{\text { Income information for } 2017}$