cwang1026
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Joined: 16 Jun 2010
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Posts: 114
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| Posted: 29 Jul 2010 at 02:30 | IP Logged
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cash flows is a very confusing topic for me, this question makes it even more confusing:
Metro, Inc. reported net income of $150,000 for 2006. Changes occurred in several balance sheet accounts during 2006 as follows:
- Investment in Videogold, Inc. stock, carried on the equity basis $5,500 increase
- Accumulated depreciation, caused by major repair to proj equip $2,100 decrease
- Premium on bonds payable $1,400 decrease
- Deferred income tax liability (long term) $1,800 increase
In Metro's 2006 cash flow stmt, the reported net cash provided by operating activities should be:
answer: $144,900
This is how I tried to think it through:
JE for above transactions:
investment 5,500
investment income 5,500 <--this increases NI, (deduct)
accumulated depr 2,100
depreciation exp 2,100 <---this decreases NI, (add)
premium BP 1,400
interest expense 1,400 <---this increases NI, (deduct)
income tax expense 1,800 <---this decreases NI, (add)
income tax liability 1,800
150,000
(5,500)
2,100
(1,400)
1,800
147,000 <--My answer
can anyone tell me why accumulated depreciation was not included in the calculations?
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Topic: cash flows - indirect method
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