The net income reported on the income statement for the current year was $310,000. Depreciation recorded on fixed assets and amortization of patents for the year were $40,000 and $9,000, respectively. Balances of current asset and current liability accounts at the end and at the beginning of the year are as follows: $\begin{array}{lll}
\text { Beginning } & {\text { End }} \
\hline \$ 60,000 & \$ 50,000 & \text { Cash } \
108,000 & 112,000 & \text { Accounts receivable } \
93,000 & 105,000 & \text { Inventories } \
6,500 & 4,500 & \text { Prepaid expenses }\89,000 & 75,000&\text { Accounts payable (merchandise creditors) }
\end{array}$ What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method?

Question

Quizplus · Accepted Answer

To calculate cash flows from operating activities using the indirect method, start with net income ($310,000), add back non-cash expenses (depreciation $40,000 and amortization $9,000), and adjust for changes in working capital: decrease in cash ($10,000), increase in accounts receivable ($4,000), increase in inventories ($12,000), decrease in prepaid expenses ($2,000), and decrease in accounts payable ($14,000). The calculation is: $310,000 + $40,000 + $9,000 - $4,000 - $12,000 + $2,000 - $14,000 = $331,000.

The Net Income Reported on the Income Statement for the Current