Presented Below Is a Partial Statement of Cash Flows for Santiago

question 57

Essay

Presented below is a partial statement of cash flows for Santiago Company for 2017.
$\begin{array}{lr}\text { Net income}&\$44.000\\\text { Adjustments to net income:}&\\\text { Add: Depreciation } & 7,000 \\\text { Decrease in accounts receivable } & 12,000 \\\text { Increase in salaries payable } & 5,000 \\\text { Less: Gain on sale of equipment } & (1,000 \\\text { Increase in inventories } & (2,000 \\\text { Decrease in accounts payable } & \underline{(5,000)}\\\text { Net cash inflows from operating activities } & \underline{\$ 60,000}\end{array}$
Mr. Santiago, the president of the company, is puzzled by why the cash from operating activities in the statement presented above is $60,000, as compared to the company's income statement for the same period that shows net income of $44,000. Provide justification why the two amounts might not be equal.

---

Definitions:

Perfect Complements

Goods that are always consumed together in fixed proportions because their consumption provides utility only when combined, such as left and right shoes.

Income Effect

The change in an individual's consumption choices that results from a change in their real income or purchasing power.

Substitution Effect

The substitution effect occurs when consumers replace cheaper items for more expensive goods due to changes in relative prices, holding utility constant.

Slutsky Compensated Demand Curve

Represents consumer demand by adjusting for changes in purchasing power, illustrating how quantity demanded varies with price, holding utility constant.