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Ya Wen Corporation’s accumulated depreciation—equipment account increased by $8,750, while $3,250 of patent amortization was recognized between balance sheet dates. There were no purchases or sales of depreciable or intangible assets during the year. In addition, the income statement showed a gain of $18,750 from the sale of investments. Reconcile a net income of $175,000 to net cash flow from operating activities.

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Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305088436

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BuyFindarrow_forward

Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305088436
Chapter 16, Problem 2PEB
Textbook Problem
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Ya Wen Corporation’s accumulated depreciation—equipment account increased by $8,750, while $3,250 of patent amortization was recognized between balance sheet dates. There were no purchases or sales of depreciable or intangible assets during the year. In addition, the income statement showed a gain of $18,750 from the sale of investments. Reconcile a net income of $175,000 to net cash flow from operating activities.

To determine

Compute net cash flows from operating activities under indirect method.

Explanation of Solution

The below table shows the way of calculation of cash flows from operating activities:

Cash flows from operating activities (Indirect method)
 
Add: Decrease in current assets
         Increase in current liability
         Depreciation expense and amortization expense
         Loss on sale of plant assets
 
Deduct: Increase in current assets
              Decrease in current liabilities
              Gain on sale of plant assets
Net cash provided from or used by operating activities

Table (1)

Statement of cash flows: It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.

Indirect method: Under this method, the following amounts are to be adjusted from the Net Income to calculate the net cash provided from operating activities...

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Chapter 16 Solutions

Financial Accounting
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