Question

Titanium Company's net income last year was $25,000, and cash dividends declared and paid to the stockholders were $10,000 . Changes in selected balance sheet accounts for the year appear below: Increases (Decreases) Debit balances: Accounts receivable $(4,000) Inventory 8,000 Long-term investments 30,000 Credit balances: Accumulated depreciation 10,000 Accounts payable 5,000 Accrued liabilities (9,000) Taxes payable (2,000) Based solely on this information, net cash flow from operating activities under the indirect method on the statement of cash flows would be:_________.
a. $20,000.
b. $37,000.
c. $12,000.
d. $25,000.

Answer 1

Answer:

d. $25,000

Explanation:

Prepare the Cash flow from Operating Activities Section in the Statement of Cash Flow

Cash flow from operating activities

Net Income                                             $25,000

Adjustment for Non Cash Items:

Increase in Accumulated Depreciation $10,000

Adjustment for Working Capital Items:

Decrease in  Accounts receivable          $4,000

Increase in Inventory                              ($8,000)

Increase in Accounts payable                   5,000

Decrease in Accrued liabilities              ($9,000)

Decrease in Taxes payable                   ($2,000)

Cash Generated from Operations         $25,000

Dividends Paid                                        $10,000

Net Cash from operating Activities       $35,000

Note: Dividends Paid  can be shown under Financing Activities hence  net cash flow from operating activities under the indirect method would be $25,000.

Answer 2

Answer:

The correct option is D,$25,000

Explanation:

The cash flow generated from operating activities in the year can be computed as follows:

Net income                                           $25,000

add depreciation                                  $10,000

add reduction in accounts receivable $4,000

less increase in inventory                     ($8,000)

add increase in accounts payable       $5,000

deduct reduction accrued liabilities    ($9,000)

deduct reduction in tax payable         ($2,000)

Net cash flow operating activities       $25,000

The reduction in current asset is means an inflow of cash.hence added.

The increase in liabilities means the company saved cash that ought to have been paid,hence added as well.