Using the Indirect Method, Calculate the Amount of Net Cash

question 185

Essay

Using the indirect method, calculate the amount of net cash flows from operating activities from the following data:
$\begin{array}{lrr}&2014&2013\\\text { Net Income } & \$ 250,000 & \\\text { Accounts receivable } & 22,000 & 25,000 \\\text { Prepaid expenses } & 3,000 & 5,000 \\\text { Accounts payable } & 14,000 & 15,000 \\\text { Depreciation expense } & 51,000 & \\\text { Amortization expense (Patent) } & 4,000 & \\\text { Dividends declared and paid } & 11,000 &\end{array}$

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Definitions:

Relevant Range

The range of activity within which the assumptions about fixed and variable cost behavior are valid.

High-low Method

A way to estimate the cost-behavior formula that uses the highest and lowest levels of activity to determine fixed and variable costs.

Activity Index

A measure or indicator used to gauge activity levels within a particular domain, such as manufacturing or stock trading volume.

Process Cost System

A cost accounting system used when a company manufactures a large volume of similar products.