The financial statements of Simon Co. include the following items (amounts in th

Question

The financial statements of Simon Co. include the following items (amounts in thousands):

For year end Dec. 31st, 2007
Income statement
net income............................................$420,000.00
depreciation and amortization expense............320,000.00

Balance sheet
At Dec. 31 2007 2006
accounts receivable............................ $125,000.00 $170,000.00
inventory........................................ 170,000.00 150,000.00
accounts payable............................... 80,000.00 90,000.00
income tax payable............................ 50,000.00 15,000.00

A.Calculate the net cash flow provided by operations for Simon Co. for the year ended Dec. 31, 2007.
B. Explain why net income is different from the net cash provided by operations.

Explanation / Answer

A.Calculate the net cash flow provided by operations for Simon Co. for the year ended Dec. 31, 2007. net income................................................................................................$420,000 Add: Decrease in accounts receivable………… 45,000 depreciation and amortization expense......320,000 Increase in Income tax payable………….. 35,000 400,000 820,000 Less: Increase in inventory……………………….. 20,000 Decrease in accounts payable ………………10,000 30,000 Net Cash Provided by operating activities 790,000 ====== B. Explain why net income is different from the net cash provided by operations. Net cash flow is different from net income, because, it has the adjustment of non cash transaction. The adjustments made in calculating net income, are non-cash transactions.

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