Got a question here. How am I suppose to know that the dividend received has already been included in income? Is this just a default assumption?
Twin House Inc. reported net income of $753,000 for the current year-ended December 31. Twin House's financial statements reflected the following information:
Depreciation expense $ 150,000
Gain on sale of trading securities 6,000
Goodwill impairment 75,000
Decrease in accounts receivable 48,000
Increase in inventory 33,000
Decrease in trading securities 50,000
Increase in available-for-sale securities 62,000
Increase in accounts payable 70,000
Decrease in taxes payable 15,000
Dividend paid 200,000
Dividend received 27,000
What should Twin House report as net cash provided by operating activities on the statement of cash flows, assuming that Twin House classifies the proceeds from the sale of the trading securities as an operating cash inflow?
a. $1,092,000
b. $1,119,000
c. $1,030,000
d. $892,000
Choice “a” is correct. Based on the information given, operating cash flow must be calculated using the indirect method:
Net income $ 753,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense $ 150,000
Goodwill impairment 75,000
Gain on sale of trading securities (6,000)
Changes in current assets and liabilities:
Decrease in accounts receivable 48,000
Increase in inventory (33,000)
Decrease in trading securities 50,000
Increase in accounts payable 70,000
Decrease in taxes payable (15,000)
Total Adjustments 339,000
Net cash provided by operating activities $ 1,092,000
The dividend paid is included in cash flows from financing activities. The dividend received is included in net income, so a separate adjustment is not needed. The cash flows related to the increase in available-for-sale securities is included in cash flows from investing activities.
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