16) Which would be subtracted from net income in the operating section of an ind
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16) Which would be subtracted from net income in the operating section of an indirect cash flow statement? A) An increase in sales tax payable C) A decrease in Notes Payable B) An increase in inventory D) A decrease in prepaid expenses 17) when preparing the Statement of Cash Flows by the indirect method, if current liabilities increase, the difference is A) added to investing activities. C) deducted from investing activities. B) deducted from net income. D) added to net income. 18) Enterprise Industries' Accounts Receivable decreased by $30,000 and its Accounts Payable decreased by $16,000. What is the net effect on cash from operations under the indirect method? A) +$14,000 B) -$46,000 C) -$14,000 D) +$46,000 19) Sterling Sails reported net income of $35,000; depreciation expenses of $20,000; an increase in Accounts Payable of $2,000; and an increase in current notes receivable of $3,000. Net Cash Flows from operating activities under the indirect method is: A) $54,000. B) $55,000. C) $50,000. D) $56,000.Explanation / Answer
Solution:
16. "Increase in inventory" and "Decrease in notes payable" both would be subtracted from net income in the operating section of indirect cash flow statement as increase in inventory results in purchase of stock that requires outlay of funds and decrease in notes payable implies that liabilities are paid.
17. If current liabilites increases then difference is added to net income as increase in current liabilities implies that purchase made on credit instead of cash.
18. If accounts receivable decreased by $30,000 it means cash received from debtors for $30,000. If accounts payable decreased by $16,000 it means liabilities were paid off. Hence net cash from operation = $30000-$16,000 = $14,000 +
19. Cash flow from operating activities = Net Income + Depreciation Expense + Increase in Notes payable - Increase in accounts receivable
= $35,000 + $20,000 + $2,000 - $3,000 = $54,000
11. Amount of dividend to be paid = 350000 * 3 * 5% = $52,000 and this amount will be debited to retained earnings.
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