Phillips Corporation reports net income of $480,000 that includes a gain on the sale of land of $8,000 and a loss on the sale of equipment of $2,000. What is the company’s cash inflows from operating activities?Multiple Choice$486,000$470,000$474,000$490,000
Question
Phillips Corporation reports net income of 8,000 and a loss on the sale of equipment of 486,000474,000$490,000
Solution
The cash inflows from operating activities can be calculated by adjusting the net income for non-operating gains and losses. Here's how:
- Start with the net income: $480,000
- Subtract the gain on the sale of land: 8,000 = $472,000. This is because the gain on the sale of land is a non-operating activity, so it should be excluded.
- Add back the loss on the sale of equipment: 2,000 = $474,000. This is because the loss on the sale of equipment is also a non-operating activity, so it should be added back.
So, the company’s cash inflows from operating activities is $474,000.
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