KJ 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,$136,000
• Accounts payable increased $11,000
• Prepaid assets decreased $8,000
• Depreciation expense was $12,000
• Accounts receivable increased $23,000
• Loss on sale of a depreciable asset was $6,000
• Wages payable decreased $9,000
• Unearned revenue decreased $19,000
• Patent amortization expense was $3,000
How much was KJ's net income?
A)$185,000.
B)$135,000.
C)$147,000.
D)$131,000.

Question

Quizplus · Accepted Answer

Using the indirect method, we start with net income and adjust for the changes in current assets and liabilities that affect cash flow.

We can write the equation as follows:

Net income + Depreciation expense + Amortization expense - Loss on sale of asset +/- Changes in current assets/liabilities = Cash flow from operating activities

Plugging in the numbers, we get:

Net income + $12,000 + $3,000 - $6,000 +$23,000 - $11,000 - $8,000 - $9,000 + $19,000 = $136,000

Simplifying, we get:

Net income = $147,000

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