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Fallon Corporation reports net income of $370,000. Accounts Receivable balances at the beginning and end of the year were $40,000 and $48,000, respectively. Beginning and ending Inventory balances were $60,000 and $54,000, respectively. What is the company’s cash inflows from operating activities?Multiple Choice$356,000$372,000$384,000$368,000

Question

Fallon Corporation reports net income of 370,000.AccountsReceivablebalancesatthebeginningandendoftheyearwere370,000. Accounts Receivable balances at the beginning and end of the year were 40,000 and 48,000,respectively.BeginningandendingInventorybalanceswere48,000, respectively. Beginning and ending Inventory balances were 60,000 and 54,000,respectively.Whatisthecompany’scashinflowsfromoperatingactivities?MultipleChoice54,000, respectively. What is the company’s cash inflows from operating activities?Multiple Choice356,000372,000372,000384,000$368,000

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Solution

To calculate the company's cash inflows from operating activities, we need to adjust the net income for changes in working capital accounts such as Accounts Receivable and Inventory.

Step 1: Calculate the change in Accounts Receivable. The beginning balance was 40,000andtheendingbalancewas40,000 and the ending balance was 48,000. So, the change is 48,000−48,000 - 40,000 = $8,000 increase.

Step 2: Calculate the change in Inventory. The beginning balance was 60,000andtheendingbalancewas60,000 and the ending balance was 54,000. So, the change is 60,000−60,000 - 54,000 = $6,000 decrease.

Step 3: Adjust the net income for these changes. An increase in Accounts Receivable decreases cash inflows because it represents sales made on credit that have not yet been collected. So, we subtract the 8,000increasefromthenetincome.AdecreaseinInventoryincreasescashinflowsbecauseitmeanslesscashwasspentonbuyinginventory.So,weaddthe8,000 increase from the net income. A decrease in Inventory increases cash inflows because it means less cash was spent on buying inventory. So, we add the 6,000 decrease to the net income.

So, the cash inflows from operating activities is 370,000(netincome)−370,000 (net income) - 8,000 (increase in Accounts Receivable) + 6,000(decreaseinInventory)=6,000 (decrease in Inventory) = 368,000.

Therefore, the correct answer is $368,000.

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