Determining Net Income from Net Cash Flow from Operating Activities Curwen Inc.
ID: 2401105 • Letter: D
Question
Determining Net Income from Net Cash Flow from Operating Activities Curwen Inc. reported net cash flow from operating activities of $217,900 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 Decrease in inventories Depreciation Gain on sale of investments Increase in accounts payable Increase in prepaid expenses Increase in accounts receivable a. Determine the net income reported by Curwen Inc. for the year ended December 31 $4,800 11,900 18,300 8,200 3,300 2,000 9,000 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? a. Because depreciation expense which has no effect on cash flows from operating activities b. Changes in current operating assets and liabilities that are added or deducted c. Changes in fixed assets and liabilities that are added or deducted d. Gain from sales of investment is included in net income while the sales proceeds are added in operating activities of cash flow statementsExplanation / Answer
cash flow from operating activities
net income
217900+600+8200-18300
208400
Add depreciation
18300
18300
gain on sale of investment
-8200
-8200
decrease in income tax payable
-4800
decrease in inventories
11900
increase in accounts receivables
-9000
increase in accounts payable
3300
increase in prepaid expenses
-2000
changes from working capital
-600
cash flow from operating activities
217900
Answer is A
because depreciation expense which has no effect on cash flow from operating activities
cash flow from operating activities
net income
217900+600+8200-18300
208400
Add depreciation
18300
18300
gain on sale of investment
-8200
-8200
decrease in income tax payable
-4800
decrease in inventories
11900
increase in accounts receivables
-9000
increase in accounts payable
3300
increase in prepaid expenses
-2000
changes from working capital
-600
cash flow from operating activities
217900
Answer is A
because depreciation expense which has no effect on cash flow from operating activities
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