DJ Company,a manufacturer,uses the indirect method for preparing its statement of cash flows.The company has provided the following information pertaining to its recent year of operation: • Cash flow from operating activities,$272,000
• Accounts payable decreased $21,000
• Prepaid assets increased $15,000
• Depreciation expense was $27,000
• Accounts receivable decreased $21,000
• Loss on sale of a depreciable asset was $16,000
• Wages payable increased $10,000
• Unearned revenue decreased $16,000
• Patent amortization expense was $10,000
How much was DJ's net income?
A)$256,000.
B)$210,000.
C)$198,000.
D)$240,000.

Question

Quizplus · Accepted Answer

To calculate DJ Company's net income using the indirect method, start with the cash flow from operating activities and adjust for changes in working capital and non-cash expenses. The calculation is as follows:- Start with cash flow from operating activities: $272,000- Add back non-cash expenses: Depreciation ($27,000) + Amortization ($10,000) + Loss on sale of asset ($16,000) = $53,000- Adjust for changes in working capital:  - Accounts payable decrease: Subtract $21,000  - Prepaid assets increase: Subtract $15,000  - Accounts receivable decrease: Add $21,000  - Wages payable increase: Add $10,000  - Unearned revenue decrease: Subtract $16,000Net adjustments = $53,000 - $21,000 - $15,000 + $21,000 + $10,000 - $16,000 = $32,000Net income = Cash flow from operating activities + Net adjustments = $272,000 + $32,000 = $304,000However, there seems to be a mistake in my calculation as none of the provided options match the calculated figure. Let's correct the approach:- Start with cash flow from operating activities: $272,000- Adjust for non-cash expenses and changes in working capital:  - Add back Depreciation ($27,000) and Amortization ($10,000) because they are non-cash expenses.  - Add back Loss on sale of asset ($16,000) because it's a non-cash loss that reduced net income.  - Adjust for changes in working capital (Accounts payable, Prepaid assets, Accounts receivable, Wages payable, Unearned revenue) directly affects the cash flow but not the net income in the same manner.Correct calculation for net income should directly start from the cash flow from operating activities and adjust only for non-cash expenses and losses/gains:Net income = Cash flow from operating activities + Depreciation + Amortization + Loss on sale of asset = $272,000 + $27,000 + $10,000 + $16,000 = $325,000Given the error in the initial explanation and the mismatch with the provided options, it's clear that the correct approach to find the net income wasn't fully applied according to the options given. The correct answer should reflect adjustments for non-cash items and changes in operating assets and liabilities to reconcile cash flow from operating activities to net income. Without the exact adjustments matching the options, the calculation provided doesn't align with the expected outcome based on the options given.

DJ Company,a Manufacturer,uses the Indirect Method for Preparing Its Statement