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The income statement disclosed the following items for 2016: Balances of the cur

ID: 2592297 • Letter: T

Question

The income statement disclosed the following items for 2016:

Balances of the current assets and current liability accounts changed between December 31, 2015, and December 31, 2016, as follows:

Increase (Decrease)

A. Prepare the Cash Flows from Operating Activities section of the statement of cash flows

A summary of the cash receipts and cash payments for a specific period of time, such as a month or a year.

, using the indirect method. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. Use the minus sign to indicate cash outflows, cash payments, decreases in cash and for any adjustments, if required.

Question not attempted.

Statement of Cash Flows (partial)

1

Cash flows from operating activities:

2

3

Adjustments to reconcile net income to net cash flow from operating activities:

4

5

6

Changes in current operating assets and liabilities:

7

8

9

10

11

12

Solution

B. Briefly explain why net cash flows from operating activities is different than net income.

Cash flows from operating activities differs from net income because it does not use the selector 1

accrual basis

cash basis

of accounting. For example, revenues are recorded on the income statement when selector 2

they are earned

cash is received

.

Depreciation expense $53,120 Gain on disposal of equipment 40,300 Net income 449,800

Explanation / Answer

Answer:

A

Statement of Cash Flows (partial)

Amount $

Amount $

Cash flows from operating activities:

Net income

449800

Adjustments to reconcile net income to net cash
flow from operating activities:

Depreciation expense

53120

Gain on disposal of equipment

-40300

Changes in current operating assets and liabilities:

Accounts receivable

($7,420)

Inventory

6,060

Prepaid insurance

1,660

Accounts payable

($5,060)

Income taxes payable

1,250

Dividends payable

2,400

Net adjustment

11710

Cash flows from operating activities:

461510

b)

Briefly explain why net cash flows from operating activities is different than net income.

Answer:

Because certain items which are treated differently in income statement and in cash flow statement

Cash flows from operating activities differs from net income because it does not use the accrual basis

revenues are recorded on the income statement when cash is received

Statement of Cash Flows (partial)

Amount $

Amount $

Cash flows from operating activities:

Net income

449800

Adjustments to reconcile net income to net cash
flow from operating activities:

Depreciation expense

53120

Gain on disposal of equipment

-40300

Changes in current operating assets and liabilities:

Accounts receivable

($7,420)

Inventory

6,060

Prepaid insurance

1,660

Accounts payable

($5,060)

Income taxes payable

1,250

Dividends payable

2,400

Net adjustment

11710

Cash flows from operating activities:

461510