# Ya Wen Corporationâ€™s accumulated depreciationâ€”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.

### Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

Chapter
Section

### Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
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) Â Add: Decrease in current assets Â Â Â Â Â Â Â Â  Increase in current liability Â Â Â Â Â Â Â Â  Depreciation expense and amortization expense Â Â Â Â Â Â Â Â  Loss on sale of plant assets Â Deduct: Increase in current assets Â Â Â Â Â Â Â Â Â Â Â Â  Â Decrease in current liabilities Â Â Â Â Â Â Â Â Â Â Â Â  Â 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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