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9 December, 10:54

Statement of Cash Flows

W. C. Cycling had $55,000 in cash at year-end 2013 and $25,000 in cash at year-end 2014. The firm invested in property, plant, and equipment totaling $250,000. Cash flow from financing activities totaled + $170,000.

1. What was the cash flow from operating activities?

2. If accruals increased by $25,000, receivables and inventories increased by $100,000, and depreciation and amortization totaled $10,000, what was the firm's net income?

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Answers (1)
  1. 9 December, 10:57
    0
    1. $50,000

    2. $115,000

    Explanation:

    In the cash flow statements, the opening cash balance added to the net cash flows from all activities namely; Operating, investing and financing activities gives the closing cash balance.

    As such,

    $55,000 + y - $250,000 + $170,000 = $25,000

    where y is the cash flow from operating activities and the cash flow from investing (the amount invested in property, plant, and equipment) is an outflow hence negative.

    y = $250,000 - $170,000 - $55,000 + $25,000

    y = $50,000

    cash flow from operating activities is $50,000

    2. Accrual increased by $25,000 - This is an inflow in operating activities

    Receivables and inventories increased by $100,000 - This is an outflow in operating activities

    Depreciation and amortization totaled $10,000 - This is added to net income in the cashflow.

    Let the net income be k

    Therefore,

    $50,000 = k + $25,000 + $10,000 - $100,000

    k = $100,000 + $50,000 - $25,000 - $10,000

    k = $115,000

    The net income is $115,000
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