Question

Hampton Industries had $68,000 in cash at year-end 2018 and $19,000 in cash at year-end 2019. The firm invested in property, plant, and equipment totaling $150,000 – the majority having a useful life greater than 20 years and falling under the alternative depreciation system. Cash flow from financing activities totaled +$150,000. Round your answers to the nearest dollar, if necessary. a. What was the cash flow from operating activities? Cash outflow, if any, should be indicated by a minus sign. b. If accruals increased by $50,000, receivables and inventories increased by $145,000, and depreciation and amortization totaled $31,000, what was the firm's net income?

Answer 1

(a)-The cash flow from operating activities

The cash flow from operating activities = Changes in cash + Cash flow from Investing activities – Cash flow from financing activities

= [Cash at the end – Cash at the beginning] + Cash flow from Investing activities – Cash flow from financing activities

= [$19,000 - $68,000] + $150,000 - $150,000

= -$49,000 + $150,000 - $150,000

= $49,000 (Negative)

(b)-The firm's net income

The firm's net income = Cash flow from operating activities – Depreciation expenses – Increase in accruals + Increase in receivables and inventories

= -$49,000 - $31,000 - $50,000 + $145,000

= $15,000