American Eagle reported net income of $40,000, which included depreciation expen

Question

American Eagle reported net income of $40,000, which included depreciation expense and depletion expense of $21,000 and $18,000, respectively. The following changes also occurred during 2017:

Inventory

$10,000

decrease

Accounts payable

5,000

decrease

Notes payable (long-term)

15,000

decrease

Income taxes payable

7,000

increase

Accounts receivable

10,000

increase

Required:

Calculate cash flows from operating activities.

Inventory

$10,000

decrease

Accounts payable

5,000

decrease

Notes payable (long-term)

15,000

decrease

Income taxes payable

7,000

increase

Accounts receivable

10,000

increase

Explanation / Answer

cash flows from operating activities

= net income + Decrease in Inventory - Decrease in Accounts payable -Decrease in Notes payable (long-term) + Increase in Income taxes payable - Increase in Accounts receivable

= $40,000 + $10,000 -$5000 - $15000 +$ 7000 - $10000

= $27000

Cash Flows from Operating Activities: Net Income + Non-Cash Expenses: (Depreciation, Depletion & Amortization Expense) + Non-Operating Losses: (Loss on Sale of Non-Current Assets) ? Non-Operating Gains: (Gain on Sale of Non-Current Assets) + Decrease in Current Assets: (Accounts Receivable, Prepaid Expenses, Inventory etc.) ? Increase in Current Assets + Increase in Current Liabilities: (Accounts Payable, Accrued Liabilities, Income Tax Payable etc.) ? Decrease in Current Liabilities = Net Cash Flow from Operating Activities

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