The net income reported on the income statement for the current year was $250,000. 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:


End
Beginning

Cash
$ 50,000
$ 60,000

Accounts receivable
112,000
108,000

Inventories
105,000
93,000

Prepaid expenses
4,500
6,500

Accounts payable (merchandise creditors)
75,000
89,000



What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method? (Points: 4)
$271,000
$279,000
$327,000
$256,000



I have 10,000 for cash
4000 Account Rec
Inventories 12,000
Prepaid expenses2000
Accounts payble 14,000

I added 2000+14,000+ 40,000+9000=65,000
Then I subtracted 4000+12,000=16,000
Then I had 250,000+65,000=306,000-16,000=290,000
Can some help

Points: 4

Does that make this a test? We really aren't here to help you with your tests -- those are to test your knowledge in the subject matter. The time to get help is prior to the test.

But since I don't know that this isn't just a graded homework, I'll give the benefit of the doubt and post the rules of the indirect method. But you'll have to find your own mistake.

For income statement accounts, you are trying to get rid of them out of net income, so you do the opposite of what would have been done on the statement. i.e. expenses are subtracted on that statement, so you ADD them back in. Revenues are added on that statement, so you SUBTRACT them back out.

For balance sheet accounts, there are two sets of rules, all based on the change in the account. For current assets, your adjustment is the OPPOSITE of the change. (i.e. if it increased, you decrease.) For current liabilities, your adjustment is the SAME direction as the change.

Hmm, in that case, it's the payables that's off. :-)

Quote:

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Originally Posted by Mekad

The net income reported on the income statement for the current year was $250,000. 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:


End
Beginning

Cash
$ 50,000
$ 60,000

Accounts receivable
112,000
108,000

Inventories
105,000
93,000

Prepaid expenses
4,500
6,500

Accounts payable (merchandise creditors)
75,000
89,000



What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method? (Points: 4)
$271,000
$279,000
$327,000
$256,000



I have 10,000 for cash
4000 Account Rec
Inventories 12,000
Prepaid expenses2000
Accounts payble 14,000

I added 2000+14,000+ 40,000+9000=65,000
Then I subtracted 4000+12,000=16,000
Then I had 250,000+65,000=306,000-16,000=290,000
Can some help

---

I came up with 271,000.

Correct.