Question

Durrand Corporation's accumulated depreciation increased by $14,214, while patents decreased by $2,059 between consecutive balance sheet dates. There were no purchases or sales of depreciable or intangible assets during the year. In addition, the income statement showed a gain of $3,465 from sale of land. Reconcile a net income of $42,789 to net cash flow from operating activities.

Answer 1

Solution :- Net Cash flow from operating activities :-

Net Income	$ 42789
Adjustments to Reconcile Net Income :
Add : Depreciation (W Note 1)	$ 14214
Add: Decrease in the value of Patents (W Note 2)	$ 2059
Less : Gain from the sale of land ( W Note 3)	($ 3465)
Net Cash flow from operating activities	$ 55597

W Note 1 :- Since there is no sale or purchase of depreciable assets , Therefore Increase in Accumulated Depreciation represents current year depreciation which will be added while calculating cash flow from operating activities.

W Note 2 :- Since there is no sale or purchase of Intangible assets , Therefore decrease in the value of Patents (Intangible assets) represents amortization of patents which will be added while calculating cash flow from operating activities.

W Note 3 :- Gain from the sale of land will be deducted while calculating cash flow from operating activities.