Asked by Chih-Hsiang Chang on Jun 06, 2024
Verified
DJ Company,a manufacturer,uses the indirect method for preparing its statement of cash flows.The company has provided the following information pertaining to its recent year of operation: • Cash flow from operating activities,$272,000
• Accounts payable decreased $21,000
• Prepaid assets increased $15,000
• Depreciation expense was $27,000
• Accounts receivable decreased $21,000
• Loss on sale of a depreciable asset was $16,000
• Wages payable increased $10,000
• Unearned revenue decreased $16,000
• Patent amortization expense was $10,000
How much was DJ's net income?
A) $256,000.
B) $210,000.
C) $198,000.
D) $240,000.
Indirect Method
A way of preparing the cash flow statement where net income is adjusted for changes in balance sheet accounts to calculate cash flow from operating activities.
Depreciation Expense
The allocated portion of the cost of a tangible fixed asset written off each year, reflecting its usage and wear and tear.
Patent Amortization
The gradual expensing of the cost of a patent (an intangible asset) over its useful life.
- Learn how to adjust net income to reflect cash flow from operating activities utilizing the indirect approach.
- Comprehend the impact of variations in working capital accounts on cash flows stemming from operational activities.
- Comprehend the procedure of the indirect approach in ascertaining cash flows from operating tasks.
Verified Answer
Learning Objectives
- Learn how to adjust net income to reflect cash flow from operating activities utilizing the indirect approach.
- Comprehend the impact of variations in working capital accounts on cash flows stemming from operational activities.
- Comprehend the procedure of the indirect approach in ascertaining cash flows from operating tasks.
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