Question

The financial statements of Flathead Lake Manufacturing Company are shown below.

Income Statement 2017
Sales	$	9,300,000
Cost of Goods Sold		5,750,000
Depreciation Expense		550,000
Gross Profit	$	3,000,000
Selling and Administrative Expenses		2,200,000
EBIT	$	800,000
Interest Expense		200,000
Income before Tax	$	600,000
Taxes		375,000
Net Income	$	225,000

Flathead Lake Manufacturing Comparative Balance Sheets
	2017			2016
Cash	$	50,000		$	40,000
Accounts Receivable		570,000			600,000
Inventory		530,000			460,000
Total Current Assets	$	1,150,000		$	1,100,000
Fixed Assets		2,050,000			1,400,000
Total Assets	$	3,200,000		$	2,500,000
Accounts Payable	$	320,000		$	300,000
Bank Loans		480,000			400,000
Total Current Liabilities	$	800,000		$	700,000
Long-term Bonds		1,500,000			1,000,000
Total Liabilities	$	2,300,000		$	1,700,000
Common Stock (200,000 shares)		200,000			200,000
Retainded Earnings		700,000			600,000
Total Equity	$	900,000		$	800,000
Total Liabilities and Equity	$	3,200,000		$	2,500,000

Note: The common shares are trading in the stock market for $15 per share.

Refer to the financial statements of Flathead Lake Manufacturing Company. The firm's cash flow from operating activities for 2017 was _______.

Multiple Choice

• $755,000

• $775,000

• $810,000

• $735,000

Answer 1

Answer :- $755,000

Calculation :-

Calculation of cash flow from operating activities :-

Net Profit + Depreciation + Decrease in Current Asset - Increase in Current Asset + Increase in Current liablities - Decrease in Current liablities

The cash inflows received through bank loans and the cash outflows used to repay the principal amount of short-term bank loans are reported in the financing activities in cash flow statement and not in operating activities. Though they are classified as Current liablity because they are paid in short term means within 1 year.

Cash flow from operating activities = 225,000 + 550,000 + 30,000 - 70,000 + 20,000

= $755,000