Question

Bryant Co. reports net income of $20,000. For the year, depreciation expense is $7,000 and the company reports a gain of $3,000 from sale of machinery. It also had a $2,000 loss from retirement of notes. Compute cash flows from operations using the indirect method. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

Answer:

$26,000

Explanation:

Operating activities: It includes those transactions which affect the working capital after net income. The increase in current assets and a decrease in current liabilities would be deducted whereas the decrease in current assets and an increase in current liabilities would be added.  

These changes in working capital would be adjusted. Moreover, the depreciation expense is added to the net income

The computation of the cash flows from operations is shown below:

Cash flow from Operating activities  

Net income $20,000

Adjustments made:

Add: Depreciation expense $7,000

Less: Gain on sale of machinery - $3,000

Add: Loss from the retirement of notes $2,000

Net Cash flow from Operating activities $26,000