Reading 34: Understanding the Cash Flow Statement - LOS f, net, income, following, method, class

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19.Given the following information, what is the adjustment to net income when calculating cash flow from operations using the indirect method?

§       Increase in accounts payable of $25.

§       Sold one share of stock for $15.

§       Paid dividends of $10 to shareholders.

§       Depreciation expense of $100.

§       Increase in inventory of $20.

A)   -$50.

B)   -$95.

C)   +$10.

D)   +$105.

20.The Beeline Company has the following balance sheet and income statement.

Beeline Company Balance Sheet
As of December 31, 2004
	2003	2004		2003	2004
Cash	$50	$60	Accounts payable	$100	$150
Accounts receivable	100	110	Long-term debt	400	300
Inventory	200	180	Common stock	50	50
			Retained earnings	400	500
Fixed assets (gross)	800	900	Total liabilities and equity	$950	$1,000
Less: Accumulated depreciation	200	250
Fixed assets (net)	600	650
Total assets	$950	$1,000

 

Beeline Company Income Statement
For year ended December 31, 2004
Sales	$1,000
Less:
COGS	600
Depreciation	50
Selling, general, and administrative expenses	160
Interest expense	23
Income before taxes	$167
Less tax	67
Net income	$100

The cash flow from operations for 2004 is:

A)   $260.

B)   $100.

C)   $150.

D)   $210.

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答案和详解如下：

19.Given the following information, what is the adjustment to net income when calculating cash flow from operations using the indirect method?

§       Increase in accounts payable of $25.

§       Sold one share of stock for $15.

§       Paid dividends of $10 to shareholders.

§       Depreciation expense of $100.

§       Increase in inventory of $20.

A)   -$50.

B)   -$95.

C)   +$10.

D)   +$105.

The correct answer was D)

Using the indirect method, the increase in accounts payable is a source of cash from operations (+25), depreciation expense is a non-cash expense added back in computing cash from operations (+100), and increase in inventory is a use of cash from operations (-20) = 25 + 100 - 20 = 105. The sale of stock and the dividends paid are financing cash flows that are not included in net income, so they do not require adjustment when calculating CFO.

20.The Beeline Company has the following balance sheet and income statement.

Beeline Company Balance Sheet
As of December 31, 2004
	2003	2004		2003	2004
Cash	$50	$60	Accounts payable	$100	$150
Accounts receivable	100	110	Long-term debt	400	300
Inventory	200	180	Common stock	50	50
			Retained earnings	400	500
Fixed assets (gross)	800	900	Total liabilities and equity	$950	$1,000
Less: Accumulated depreciation	200	250
Fixed assets (net)	600	650
Total assets	$950	$1,000

 

Beeline Company Income Statement
For year ended December 31, 2004
Sales	$1,000
Less:
COGS	600
Depreciation	50
Selling, general, and administrative expenses	160
Interest expense	23
Income before taxes	$167
Less tax	67
Net income	$100

The cash flow from operations for 2004 is:

A)   $260.

B)   $100.

C)   $150.

D)   $210.

The correct answer was D)

Cash flow from operations (CFO) calculated using the indirect method is: net income (100) + depreciation (50) – increase in accounts receivable (10) + decrease in inventory (20) + increase in accounts payable (50) = $210.