Answer to Question #197378 in Accounting for Milan

Question

The following information is from Mabel Co.’s year-end financial statements for the current and

previous years:

Current year

• Prepaid Expenses = $10,000
• Accounts Payable = 50,000
• Land = 250,000

Previous year

• Prepaid Expenses = $20,000
• Accounts Payable = 30,000
• Land = 600,000

Land was sold during the current fiscal year for cash resulting in a loss of $40,000. What is

Mabel’s net adjustment to net income to determine net cash from operating activities?

A. ($70,000)

B. $0

C. $30,000

D. $70,000

Answer 1

Answer is D. $70,000

The net adjustment to net income is as follows:

The following are added to the Net income:

Loss on disposal of land (fixed asset) - $40,000

Decrease in current asset (Prepaid Expenses) - $10,000

Increase in liabilities (Accounts payable) - $20,000

Net adjustment = $(40,000 + 10,000 + 20,000) = $70,000