Question

Statement of Cash Flows

W.C. Cycling had $55,000 in cash at year-end 2013 and $25,000 in cash at year-end 2014. The firm invested in property, plant, and equipment totaling $250,000. Cash flow from financing activities totaled +$170,000.

1. What was the cash flow from operating activities?

2. If accruals increased by $25,000, receivables and inventories increased by $100,000, and depreciation and amortization totaled $10,000, what was the firm’s net income?

Answer 1

Answer:

1. $50,000

2. $115,000

Explanation:

In the cash flow statements, the opening cash balance added to the net cash flows from all activities namely; Operating, investing and financing activities gives the closing cash balance.

As such,

$55,000 + y - $250,000 + $170,000 = $25,000

where y is the cash flow from operating activities and the cash flow from investing (the amount invested in property, plant, and equipment) is an outflow hence negative.

y = $250,000 - $170,000 - $55,000 + $25,000

y = $50,000

cash flow from operating activities is $50,000

2. Accrual increased by $25,000 - This is an inflow in operating activities

Receivables and inventories increased by $100,000 - This is an outflow in operating activities

Depreciation and amortization totaled $10,000 - This is added to net income in the cashflow.

Let the net income be k

Therefore,

$50,000 = k + $25,000 + $10,000 - $100,000

k = $100,000 + $50,000 - $25,000 - $10,000

k = $115,000

The net income is $115,000