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A company's net income is $48,000. Adjustments: depreciation +$5,000; gain on sale of investments ($10,000); loss on sale of equipment +$1,000; decrease in accounts receivable +$24,000; increase in inventory ($32,000); decrease in prepaid insurance +$6,000; increase in accounts payable +$7,000; decrease in wages payable ($3,000). What is net cash flow from operating activities?
A$46,000
B$50,000
C$42,000
D$58,000
Answer & Solution
Correct answer: A. $46,000
1. Net income: $48,000.
2. +Depreciation 5,000; −Gain 10,000; +Loss 1,000 → $44,000.
3. +Decrease in AR 24,000 → $68,000.
4. −Increase in inventory 32,000 → $36,000.
5. +Decrease in prepaid insurance 6,000; +Increase in AP 7,000 → $49,000.
6. −Decrease in wages payable 3,000 → $46,000.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §7.2.3 "Operating activities section (indirect method)", p.272_
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