Asked by Kristine Mae Almodiel on Apr 30, 2024
Verified
Garton Company had net income of $195000 in 2016. Depreciation expense for the year is $50000. During the year Accounts Receivable increased $8000 and Prepaid Expenses decreased $1000. The company also sold equipment at a loss of $3000.
Instructions
Calculate net cash flows from operating activities using the indirect method.
Indirect Method
A way to present the cash flow statement where net income is adjusted for non-cash transactions, changes in working capital, and operational activities to yield cash flow from operations.
Depreciation Expense
An accounting method used to allocate the cost of a tangible or physical asset over its useful life.
- Employ direct and indirect approaches to calculate net cash flows from operating activities.
- Analyze how alterations in balance sheet accounts influence cash flow activities.
Verified Answer
NM
Niquayi MassardMay 07, 2024
Final Answer :
Net Income $195,000 Add: Depreciation 50,000 Loss on sale of equipment 3,000 Decrease in Prepaid Expenses 1,000 Deduct Increase in Accounts Receivable (8,000) Net cash flows from operating activities $241,000\begin{array}{lr}\text { Net Income } & \$ 195,000 \\\text { Add: } \quad \text { Depreciation } & 50,000 \\\quad \text { Loss on sale of equipment } & 3,000 \\\quad \text { Decrease in Prepaid Expenses } & 1,000 \\\text { Deduct Increase in Accounts Receivable } & (8,000) \\\text { Net cash flows from operating activities } & \$ 241,000\end{array} Net Income Add: Depreciation Loss on sale of equipment Decrease in Prepaid Expenses Deduct Increase in Accounts Receivable Net cash flows from operating activities $195,00050,0003,0001,000(8,000)$241,000
Learning Objectives
- Employ direct and indirect approaches to calculate net cash flows from operating activities.
- Analyze how alterations in balance sheet accounts influence cash flow activities.
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