Question

he accounting records of EZ Company provided the data below. Net income $ 50,000 Depreciation expense 7,000 Increase in inventory 1,500 Decrease in salaries payable 800 Decrease in accounts receivable 2,000 Amortization of patent 500 Amortization of premium on bonds 1,000 Increase in accounts payable 4,000 Cash dividends 12,000 Prepare a reconciliation of net income to net cash flows from operating activities.

Answer 1

Answer:

                                                                               Amount in $

Net income                                                                 50,000

Depreciation expense                                                  7,000

Increase in inventory                                                    (1,500)

Decrease in salaries payable                                         (800)

Decrease in accounts receivable                                 2,000

Amortization of patent                                                      500

Amortization of premium on bonds                               1,000

Increase in accounts payable                                       4,000

Net cash flow from operating activities                   62,200

Explanation:

Net income = $ 50,000 (operating activity)

Depreciation expense = $7,000 (operating activity)

Increase in inventory = $1,500 (operating activity)

Decrease in salaries payable = $800 (operating activity)

Decrease in accounts receivable = $2,000 (operating activity)

Amortization of patent = $500 (operating activity)

Amortization of premium on bonds = $1,000 (operating activity)

Increase in accounts payable = $4,000 (operating activity)

Cash dividends = $12,000 (financing activity)

Reconciliation of net income to net cash flows from operating activities

                                                                                 Amount in $

Net income                                                                 50,000

Depreciation expense                                                  7,000

Increase in inventory                                                    (1,500)

Decrease in salaries payable                                         (800)

Decrease in accounts receivable                                 2,000

Amortization of patent                                                      500

Amortization of premium on bonds                               1,000

Increase in accounts payable                                       4,000

Net cash flow from operating activities                   62,200