Walker Company reports net income of $420,000 for the year ended December 31, 2010. It also reports $75,600 depreciation expense and a gain of $11,000 on the sale of machinery. Its comparative balance sheets reveal a $33,600 decrease in accounts receivable, $17,220 increase in accounts payable, $9,240 decrease in prepaid expenses, and $13,020 increase in wages payable. What is the net cash flows provided (used) by operating activities using the indirect method?

Question

Quizplus · Accepted Answer

The net cash flows from operating activities using the indirect method is calculated by adjusting net income for non-cash expenses, gains/losses, and changes in working capital. Starting with net income of $420,000, add back depreciation of $75,600, subtract the gain on sale of machinery of $11,000, and adjust for changes in working capital: add the decrease in accounts receivable of $33,600, add the increase in accounts payable of $17,220, add the decrease in prepaid expenses of $9,240, and add the increase in wages payable of $13,020. This results in a total of $539,200.

Walker Company Reports Net Income of $420,000 for the Year