Question

Adjustments to Net Income—Indirect Method

Omni Corporation's accumulated depreciation—equipment account increased by $10,000, while $6,500 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 loss of $7,600 from the sale of investments.

Reconcile a net income of $114,000 to net cash flow from operating activities.

Changes in Current Operating Assets and Liabilities—Indirect Method

Victor Corporation's comparative balance sheet for current assets and liabilities was as follows:

	Dec. 31, Year 2		Dec. 31, Year 1
Accounts receivable	$15,700		$14,400
Inventory	52,400		53,100
Accounts payable	11,100		9,600
Dividends payable	25,000		27,000

Adjust net income of $124,600 for changes in operating assets and liabilities to arrive at net cash flow from operating activities.

Answer 1

Answer:

1.

Statement of Cash Flow
Cash flow from operating activities:
Net income	$114000
Adjustment to reconcile net income to operating cash flow
Add: Depreciation expense	$10000
Add: Patents amortization	$6500
Less: Gain on sale of land	$(7600)
Net cash flow from Operating activities	$122900

2.

Net income	124600
Adjustments to reconcile net income to net cash flow from operating activities:
Changes in current operating assets and liabilities:
Decrease in accounts receivable	-1300	=14400-15700
Increase in inventory	-700	=52400-53100
Decrease in accounts payable	1500	=11100-9600
Net cash flow from operating activities	124100

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