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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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The net cash provided by operating activities in Seat’s statement of cash flows for 2019 was $8,000,000. For 2019, depreciation on fixed assets was $3,800,000, amortization of patents was $100,000, and dividends on common stock were $2,000,000. Based on the preceding information, Seat’s net income for 2019 was:

  1. a. $2,100,000
  2. b. $4,100,000
  3. c. $8,000,000
  4. d. $11,900,000

To determine

Calculate the net income of S company for the year ended 2019.

Explanation

Statement of cash flows: Cash flow statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities.

Net income: The bottom line of income statement which is the result of excess of earnings from operations (revenues) over the costs incurred for earning revenues (expenses) is referred to as net income.

Depreciation expense: Depreciation expense is a non-cash expense, which is recorded on the income statement reflecting the consumption of economic benefits of long-term asset on account of its wear and tear or obsolesces. In cash flow statement depreciation on assets and amortization of patents are added with net income.

Cash flows from operating activities.  

Net cash flow fromoperating activities)(Net income + Depreciation on fixed assets + Amortization of patents)

Thus, given values are net cash flow from operating activities, depreciation, and amortization of patents to determine the net income

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