Let's solve this step by step using the **Indirect Method** for calculating **Net Cash Flow from Operating Activities**. ### **Formula (Indirect Method)** \[ \text{Net Cash Flow from Operating Activities} = \text{Net Income} + \text{Non-cash Expenses} + \text{Decrease in Current Assets} - \text{Increase in Current Assets} + \text{Increase in Current Liabilities} - \text{Decrease in Current Liabilities} \] We adjust net income for changes in working capital accounts (current assets & current liabilities). --- ## **Step 1: Start with Net Income** Given net income = **$112,000** --- ## **Step 2: Adjust for Changes in Working Capital** ### **A. Current Assets (Subtract increases, add decreases)** - **Accounts Receivable:** End: $56,000 | Begin: $48,000 Increase of $8,000 → Subtract - **Inventory:** End: $62,000 | Begin: $65,000 Decrease of $3,000 → Add - **Prepaid Insurance:** End: $2,000 | Begin: $6,000 Decrease of $4,000 → Add ### **B. Current Liabilities (Add increases, subtract decreases)** - **Accounts Payable:** End: $18,000 | Begin: $22,000 Decrease of $4,000 → Subtract - **Wages Payable:** End: $11,000 | Begin: $15,000 Decrease of $4,000 → Subtract --- ## **Step 3: Plug into the Formula** \[ \text{Net Cash Flow from Operating Activities} = \$112,000 - \$8,000 \ (\text{A/R increase}) + \$3,000 \ (\text{Inventory decrease}) + \$4,000 \ (\text{Prepaid Insurance decrease}) - \$4,000 \ (\text{A/P decrease}) - \$4,000 \ (\text{Wages Payable decrease}) \] --- ### **Step 4: Calculate** \[ = 112,000 - 8,000 + 3,000 + 4,000 - 4,000 - 4,000 \] \[ = 112,000 - 8,000 = 104,000 \] \[ = 104,000 + 3,000 = 107,000 \] \[ = 107,000 + 4,000 = 111,000 \] \[ = 111,000 - 4,000 = 107,000 \] \[ = 107,000 - 4,000 = 103,000 \] --- ## **Final Answer** \[ \boxed{\$103,000} \] --- ### **Summary Table** | Item | Adjustment | Amount | |---------------------------|--------------|---------| | Net Income | Start | 112,000 | | Accounts Receivable | Subtract | -8,000 | | Inventory | Add | +3,000 | | Prepaid Insurance | Add | +4,000 | | Accounts Payable | Subtract | -4,000 | | Wages Payable | Subtract | -4,000 | | **Net Cash Flow** | **Total** | **103,000** | --- **Net Cash Flow from Operating Activities = \$103,000**

Let's carefully recalculate the net cash flow from operating activities (indirect method) using the provided information step-by-step. --- ### Step 1: Start with Net Income **Given**: Net income = **$112,000** --- ### Step 2: Identify changes in current assets and current liabilities | Item | Ending Balance | Beginning Balance | Change (End - Begin) | Effect on Cash Flow | |--------------------------|------------------|---------------------|---------------------|-----------------------------------| | Accounts Receivable | $56,000 | $48,000 | +$8,000 | Decrease in cash (subtract) | | Inventory | $60,000 | $66,000 | -$6,000 | Increase in cash (add) | | Prepaid Insurance | $2,000 | $5,000 | -$3,000 | Increase in cash (add) | | Accounts Payable | $18,000 | $22,000 | -$4,000 | Decrease in cash (subtract) | | Wages Payable | $11,000 | $15,000 | -$4,000 | Decrease in cash (subtract) | --- ### Step 3: Adjust net income for working capital changes **Using the indirect method formula:** \[ \text{Net Cash Flow from Operating Activities} = \text{Net Income} \\ + \text{(Decrease in current assets)} \\ - \text{(Increase in current assets)} \\ + \text{(Increase in current liabilities)} \\ - \text{(Decrease in current liabilities)} \] Or, more practically: \[ \text{Net Cash Flow} = \text{Net Income} + \sum (\text{Changes in current assets and liabilities}) \] Where increases in assets are subtracted, and increases in liabilities are added, and vice versa. --- ### Step 4: Apply the adjustments - **Accounts Receivable:** +$8,000 (subtract from net income) - **Inventory:** -$6,000 (add to net income) - **Prepaid Insurance:** -$3,000 (add to net income) - **Accounts Payable:** -$4,000 (subtract from net income) - **Wages Payable:** -$4,000 (subtract from net income) --- ### Step 5: Calculate \[ \text{Net Cash Flow} = 112,000 \\ - 8,000 \quad (\text{A/R increase}) \\ - 6,000 \quad (\text{Inventory decrease}) \\ - 3,000 \quad (\text{Prepaid Insurance decrease}) \\ - 4,000 \quad (\text{A/P decrease}) \\ - 4,000 \quad (\text{Wages Payable decrease}) \] Performing the calculation: \[ 112,000 - 8,000 = 104,000 \\ 104,000 - 6,000 = 98,000 \\ 98,000 - 3,000 = 95,000 \\ 95,000 - 4,000 = 91,000 \\ 91,000 - 4,000 = 87,000 \] --- ### **Final Answer:** **Net cash flow from operating activities = \(\boxed{\$87,000}\)** --- ### **Summary:** | Description | Calculation Step | Amount | |-------------------------------------|----------------------------------------|---------| | Starting Net Income | | 112,000 | | Less: Accounts Receivable increase | -8,000 | | | Add: Inventory decrease | +6,000 | | | Add: Prepaid Insurance decrease | +3,000 | | | Less: Accounts Payable decrease | -4,000 | | | Less: Wages Payable decrease | -4,000 | | | **Net Cash Flow from Operating Activities** | | **87,000** | --- **Note:** Always verify the direction of changes: increases in assets decrease cash, increases in liabilities increase cash, and vice versa.