Question

Determining Net Income from Net Cash Flow from Operating Activities Curwen Inc. reported net cash flow from operating activities of $201,300 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 $4,500 11,200 17,300 7,800 Depreciation Gain on sale of investments Increase in accounts payable 3,100 Increase in prepaid expenses 1,900 8,500 Increase in accounts receivable a. Determine the net income reported by Curwen Inc. for the year ended December 31. 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 statements. a and b ✓

Answer 1

Answer to Question 1:

Net cash flow from operating activities = Net income + Depreciation - Gain on sale of investments - Decrease in income taxes payable + Decrease in inventories + Increase in accounts payable - Increase in prepaid expenses - Increase in accounts receivable
$201,300 = Net income + $17,300 - $7,800 - $4,500 + $11,200 + $3,100 - $1,900 - $8,500
$201,300 = Net income + $8,900
Net income = $192,400

Answer to Question 2:

Inventory purchased = Ending inventory + Cost of goods sold - Beginning inventory
Inventory purchased = $178,020 + $1,031,550 - $193,430
Inventory purchased = $1,016,140

Cash paid to suppliers = Beginning accounts payable + Inventory purchased - Ending accounts payable
Cash paid to suppliers = $105,800 + $1,016,140 - $96,140
Cash paid to suppliers = $1,025,800

Cash paid for operating expenses = Operating expenses other than depreciation + Beginning accrued expenses payable - Ending accrued expenses payable + Ending prepaid expenses - Beginning prepaid expenses
Cash paid for operating expenses = $179,400 + $14,030 - $12,650 + $7,360 - $8,970
Cash paid for operating expenses = $179,170