Question

Hampton Industries had $72,000 in cash at year-end 2018 and $24,000 in cash at year-end 2019. The firm invested in property, plant, and equipment totaling $100,000 — the majority having a useful life greater than 20 years and falling under the alternative depreciation system. Cash flow from financing activities totaled +$140,000. Round your answers to the nearest dollar, if necessary.

1. What was the cash flow from operating activities? Cash outflow, if any, should be indicated by a minus sign.

   $  

2. If accruals increased by $15,000, receivables and inventories increased by $140,000, and depreciation and amortization totaled $13,000, what was the firm's net income?

   $  

Answer 1

a. Change in cash = Cash at the end of the year - Cash at the beginning of the year = $24,000 - $72,000 = -$48,000

Change in cash = Cash flow from operating activities + Cash flow from investing activities + Cash flow from financing activities

-$48,000 = Cash flow from operating activities + (-$100,000) + $140,000

Cash flow from operating activities = -$48,000 + $100,000 - $140,000

Cash flow from operating activities = -$88,000

b. Cash flow from operating activities = Net income + Depreciation/Amortization + Increase in accrued liabilities – Increase in accounts receivable and inventories

-$88,000 = Net income + $13,000 + $15,000 - $140,000

Net income = -$88,000 - $13,000 - $15,000 + $140,000

Net income = $24,000