Question

g3.9

Hampton Industries had $52,000 in cash at year-end 2018 and $24,000 in cash at year-end 2019. The firm invested in property, plant, and equipment totaling $250,000 - the majority having a useful life greater than 20 years and falling under the alternative depreciation system. Cash flow from financing activities totaled +$240,000. 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 $45,000, receivables and inventories increased by $125,000, and depreciation and amortization totaled $51,000, what was the firm's net income?

Answer 1

a). Change in Cash = Ending Cash Balance - Opening Cash Balance = $24,000 - $52,000 = -$28,000

Change in Cash = Cash Flow from Operating Activities + Cash Flow from Investing Activities + Cash Flow from Financing Activities

-$28,000 = Cash Flow from Operating Activities + (-$250,000) + $240,000

-$28,000 = Cash Flow from Operating Activities - $10,000

Cash Flow from Operating Activities = -$28,000 + $10,000 = -$18,000

b). Cash Flow from Operating Activities = Net Income + Depreciation - Increase in Receivables and Inventories + Increase in Accruals

-$18,000 = Net Income + $51,000 - $125,000 + $45,000

-$18,000 = Net Income - $29,000

Net Income = -$18,000 + $29,000 = $11,000