Whats your guess for this one? Given the following information, what is the amount of change in the cash account 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) +$110. C) -$95. D) +$10.
CFO = Depreciation + Increase in Accounts Payable - Increase in Inventory = 100 + 25 - 20 = 105 CFF = + 15 - 10 (Sold Share - Dividend Paid) = 5 Total change in cash = 110 Answer B
cpk123 but isn’t depreciation an adjustment to “Net Income”. Since that is not given should we not just be using the cash flows only even if its an indirect method. Having said that, the answer is B(by the source) but im not able to think like this. Can you help me digest this?
Depreciation is a non cash charge. You didn’t have to pay anyone anything. It is just an accounting number. Since you are starting at net income you need to add back depreciation because you initially took depreciation (a non cash charge) out to get to net income. For cash flows, you are looking for just that, and depreciation you didn’t physically pay any cash.
Niblita75 Wrote: ------------------------------------------------------- > Depreciation is a non cash charge. You didn’t have > to pay anyone anything. It is just an accounting > number. Since you are starting at net income you > need to add back depreciation because you > initially took depreciation (a non cash charge) > out to get to net income. But there is no Net Income figure here, so why is there the need to add back something (depreciation) to something(Net income) which is not provided. >For cash flows, you are > looking for just that, and depreciation you didn’t > physically pay any cash.
what kind of comp will issue just 1 share of stock…was this from schweser?
yeah from qbank
Net Income is not given in the problem, probably means we have to calculate the change in cash balance using the direct method, despite of whatever way they have asked us to do the calculation, the answer still remains the same. - Dinesh S