Question

Accounts receivable from sales transactions were $46,226 at the beginning of the year and $62,345 at the end of the year. Net income reported on the income statement for the year was $131,314. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows prepared by the indirect method would be

a.$16,119
b.$147,433
c.$115,195
d.$131,314

Land costing $139,746 was sold for $177,944 cash. The gain on the sale was reported on the income statement as other income. On the statement of cash flows, what amount should be reported as an investing activity from the sale of land?

a.$317,690
b.$38,198
c.$177,944
d.$139,746

Answer 1

Answer:

Option (c) is correct.

Option (c) is correct.

Explanation:

(a) Change in Accounts receivable:

= Ending accounts receivables - Beginning accounts receivables

= $62,345 - $46,226

= $16,119 (increase)

Therefore, there is an increase in the accounts receivable by $16,119.

Cash flows from operating activities:

= Net Income for the year - Increase in Accounts receivable  

= $131,314 - $16,119

= $115,195

(b) The cash flows from investing activity records the cash received from sale of land and it is given that the cost of land is $139,746 and it is sold for $177,944 cash.

Hence, $177,944 cash should be reported as an investing activity from the sale of land.