The net income reported on the income statement for the current year was $73,600. Depreciation recorded on store equipment for the year amounted to $27,400. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows: End of Year Beginning of YearCash $23,500 $18,700Accounts receivable (net) 56,000 48,000Merchandise inventory 35,500 40,000Prepaid expenses 4,750 7,000Accounts payable (merchandise creditors) 21,800 16,800Wages payable 4,900 5,800Required:A. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. Use the minus sign to indicate cash outflows, cash payments, decreases in cash and for any adjustments, if required.B. Briefly explain why net cash flow from operating activities is different than net income.

B. The difference in the net cash flow from operating activities and the net income results from the basis of calculating each parameter. The net cash flow from operating activities is calculated based on the cash basis while the net income is calculated based on the accrual basis and the latter takes into account all income and expenses whether cash movement is involved or not.

Explanation:

a) Data and Calculations:

Net income = $73,600

Depreciation 27,400

Adjusted cash flow = $101,000

Working capital balances:

End of Year Beginning Increase/Decrease

of Year

Cash $23,500 $18,700 $4,800

Accounts receivable (net) 56,000 48,000 8,000

Merchandise inventory 35,500 40,000 $4,500

Prepaid expenses 4,750 7,000 2,250

Accounts payable

(merchandise creditors) 21,800 16,800 5,000

Wages payable 4,900 5,800 900

Cash Flows from Operating Activities

Adjusted cash flow $101,000

Working capital adjustments:

Accounts receivable (8,000)

Inventory 4,500

Prepaid expenses 2,250

Accounts payable 5,000

Wages payable (900)

Net cash from operations $103,850