At the End of the First Year of Operations, the Balance

question 151

Multiple Choice

At the end of the first year of operations, the balance sheet of Midwood Medical Supply showed the following: Accounts Receivable, $5,000; Accounts Payable, $6,000; Inventory, $3,000; and Unexpired Insurance, $2,000. The corporation reported net income of $79,000 for the year, including depreciation expense of $5,000, and uses the indirect method of computing net cash flow from operating activities. Solely on the basis of this information, net cash flow from operating activities is:

• A) $78,000.
• B) $82,000.
• C) $77,000.
• D) $80,000.

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Definitions:

Journal Entry

A recorded transaction in the financial accounting system, documenting the debits and credits necessary to maintain the balance sheet's integrity.

Inventory

Items that a company holds for the purpose of selling in the normal course of business, or materials used in the production of goods to be sold.

Dividends

Funds disbursed by a company to its stockholders, typically from earnings.

Consolidation Worksheet

A tool used in preparing consolidated financial statements that combines the financial information of a parent company and its subsidiaries.