The data given below are from the accounting records of Kain Company: Based on this information, the net cash flows from operating activities on the statement of cash flows using the indirect method would be
A) $51,300.
B) $50,000.
C) $42,100.
D) $44,700.

Question

The data given below are from the accounting records of Kain Company:  Based on this information, the net cash flows from operating activities on the statement of cash flows using the indirect method would be
A) $51,300. 
B) $50,000. 
C) $42,100. 
D) $44,700.

Quizplus · Accepted Answer

The net cash flows from operating activities using the indirect method can be calculated as follows:
Net income - Adjustments for non-cash items + Changes in current assets and liabilities

Net income for the period is $48,300.
Adjustments for non-cash items:
- Depreciation expense: $6,000
- Amortization of patent: $1,400
- Loss on sale of equipment: $1,600
Total adjustments: $9,000

Changes in current assets and liabilities:
- Increase in accounts receivable: $2,000
- Decrease in inventory: $1,500
- Increase in prepaid expenses: $1,400
- Decrease in accounts payable: $3,500
- Increase in accrued expenses: $3,000
Total changes: $3,400 (positive)

Net cash flows from operating activities = $48,300 - $9,000 + $3,400 = $44,700. Therefore, the best choice is D.

The Data Given Below Are from the Accounting Records of Kain