DJ Company, a manufacturer, uses the indirect method for preparing its statement of cash flows. The company has provided the following information pertaining to its recent year of operation: • Cash flow from operating activities, $272,000 • Accounts payable decreased $21,000 • Prepaid assets increased $15,000 • Depreciation expense was $27,000 • Accounts receivable decreased $21,000 • Loss on sale of a depreciable asset was $16,000 • Wages payable increased $10,000 • Unearned revenue decreased $16,000 • Patent amortization expense was $10,000 How much was DJ's net income? $256,000 $210,000 $198,000 $240,000

$240,000

Explanation:

Let the net income be Y

Accounts payable decreased $21,000 - This will be subtracted from the net profit as a reduction in liability

Prepaid assets increased $15,000 - This will be subtracted from the net profit as an increase in assets

Depreciation expense was $27,000  - This will be added back to net profit as a non cash item

Accounts receivable decreased $21,000 - This will be add from the net profit as a reduction in assets

Loss on sale of a depreciable asset was $16,000 - This will be added back to net profit as a non cash item

Wages payable increased $10,000 - This will be added from the net profit as an increase in liability

Unearned revenue decreased $16,000 - This will be subtracted from the net profit as a reduction in liability

Patent amortization expense was $10,000 - This will be added back to net profit as a non cash item

As such

Y - 21000 - 15000 + 27000 + 21000 + 16000 +10000 - 16000 + 10000 = 272000

Y = 272000  + 21000 + 15000 - 27000 - 21000 - 16000 - 10000 + 16000 - 10000

Y = $240,000

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