Zander Company\'s calendar-year 2009 income statement shows the following: Net I

Question

Zander Company's calendar-year 2009 income statement shows the following: Net Income, $395,000;
Depreciation Expense, $48,980; Amortization Expense, $9,875; Gain on Sale of Plant Assets, $4,900.
An examination of the company's current assets and current liabilities reveals the following changes (all
-from operating activities): Accounts Receivable decrease, $7,600; Merchandise Inventory decrease,$22,040; Prepaid Expenses increase, $2,000; Accounts Payable decrease, $5,000; Other Payab1es increase,
$760. Use the indirect method to compute cash flow from operating activities.

IS THIS CORRECT?

Statement of Cash Flows For Year Ended 31 Dec 2009 Cash Flows from operating activities      Net Income…………………………………………. $395,000 Adjustments to reconcile net income to net cash provided by operating activities        Plus depreciation expense $48,980        Plus Amortizationexpense $9,875 Gain SellofPlantAssets ($4,900) Decrease in Accounts Receivable $7,600 Decrease in Merchandise Inventory $22,040        Increase in prepaid expenses ($2,000)        Decrease in accounts payable ($5,000)        Increase in others payable $760 Net cash provided by operating activities……………… $472,355

Explanation / Answer

Everything looks correct. Just remember that the Gain on the Sale of Plant Assets will be a gain on the CFF part of the cash flow statement. The change in cash must still occur so when you negate it out of CFO you must add it back in CFF.

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