Question

Determining Net Income from Net Cash Flow from Operating Activities

Curwen Inc. reported net cash flow from operating activities of $216,900 on its statement of cash flows for the year ended December 31. The following information was reported in the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method:

Decrease in income taxes payable	$4,800
Decrease in inventories	12,000
Depreciation	18,400
Gain on sale of investments	8,300
Increase in accounts payable	3,300
Increase in prepaid expenses	2,000
Increase in accounts receivable	9,000

a. Determine the net income reported by Curwen Inc. for the year ended December 31.
$

b. Curwen’s net income is different than net cash flow from operating activities. Which of the following could possibly be the reason for such difference?

1. Because depreciation expense which has no effect on cash flows from operating activities.
2. Changes in current operating assets and liabilities that are added or deducted.
3. Changes in fixed assets and liabilities that are added or deducted.
4. Gain from sales of investment is included in net income while the sales proceeds are added in operating activities of cash flow statements.

Answer 1

Computaiton of Net Income
Cash Flow from Operating Activities	$216,900
Add: Decrease in income taxes payable	$4,800
Less: Decrease in inventories	-$12,000
Less: Depreciation	-$18,400
Add: Gain on sale of investments	$8,300
Less: Increase in accounts payable	-$3,300
Add: Increase in prepaid expenses	$2,000
Add: Increase in Account Receiable	-$9,000
Net Income	$189,300

Part-b

Correct answer will be Because depreciation expense which has no effect on cash flows from operating activities.

Depreciaiton expense is a non cash item

answered by: anonymous