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Reed Co.’s statement of cash flows reported cash provided from operating activities of $400,000. Depreciation of equipment was $190,000, impairment of goodwill was $5,000, and dividends paid on common stock were $100,000. In Reed’s statement of cash flows, what amount was reported as net income?
a. $205,000
b. $105,000
c. $305,000
d. $595,000
Explanation
Choice “a” is correct. Start with cash flows from operating activities and subtract depreciation and impairment expenses. Dividends paid are not included because dividends reduce retained earnings, not net income, and are included in cash flows from financing activities.
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