A company had net income of $420,000. Depreciation expense is $52,000.during the

Question

A company had net income of $420,000. Depreciation expense is $52,000.during the year accounts receivable and inventory increased $30,000 and $80,000 respectively. prepaid expenses and accounts payble decreased $4,000 and $8,000 respectively. there was also a loss on the sale of equipment ot $6,000.How much cash was provided by operating activities? The indirect and direct methods of predparing the statement of cash flows are indentical except for the a.significant noncash activity section. b.significant activities section c.investing activities section. d.financing activities. 27using the indirect method, if equipment is sold at a gain, the a.sale proceeds received are deducted in the operating activities section. b.sale proceeds received are added in the operating activities section. c.amount of the gain is added in the operating activities section. d.amount of the gain is deducted in the operating activities section. 28. The statement of cash flows a.is prepared instead of an income statement under generally accepted accounting principles. b.is used to assess an entity's ability to pay dividends and meet obligations. c.is prepared from comparative income statements. d.reflects earnings per share figures on a cash basis and on an accrual basis in the body of the statement. 29. When equipment is sold for cash, the amount received is reflected asa cash a.inflow in the operating section. b.inflow in the financing section. c.inflow in the investing section. d.outflow in the operating section.

Explanation / Answer

Solution:

Question 24 The answer to the above question is - b. An increase in accounts receivables. While preparing cash flow statement from indirect method increase in accounts receivables is subtracted from operating activities. Question 25 The answer to the above question is - Net income - 420,000 Less: increase in accounts receivables -30,000 inventory -80,000 decrease in accounts payable -8,000 Add: Depreciation 52,000 decrease in prepaid expenses 4,000 Add: loss on sale of equipment 6,000 Cash flow from operating activities 364,000 The answer to the above question is - b. $ 364,000 Question 26 The answer to the above question is - b. Operating activities Only for operating activities, there is a difference in the calculation in direct and indirect method Question 29 The answer to the above question is - c. Inflow in the investing section Sale of epuipment is shown in investing activities as inflow

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