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Let's solve Question 1 and Question 2 from the image.

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### **Question 1: Cash Flow from Operations**

We are tasked with calculating the cash flow from operations using the indirect method. The indirect method starts with the net loss and adjusts for non-cash items and changes in working capital.

Given dataLet's solve Question 1 and Question 2 from the image.

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### **Question 1: Cash Flow from Operations**

We are tasked with calculating the cash flow from operations using the indirect method. The indirect method starts with the net loss and adjusts for non-cash items and changes in working capital.

Given 
- **Net loss:** $12,000
- **Depreciation expense:** $16,800 (added back, as depreciation is a non-cash expense)
- **Changes in current assets/liabilities:**
  - **Accounts receivable increased by $2,000** (decrease cash by $2,000)
  - **Inventory decreased by $3,600** (increase cash by $3,600)
  - **Accounts payable decreased by $2,600** (decrease cash by $2,600)
  - **Prepaid insurance increased by $2,900** (decrease cash by $2,900)

Now, let's calculate the cash flow from operations:

\[
\text{Cash Flow from Operations} = \text{Net Loss} + \text{Depreciation} - \Delta \text{Accounts Receivable} + \Delta \text{Inventory} - \Delta \text{Accounts Payable} - \Delta \text{Prepaid Insurance}
\]

Substituting the values:

\[
\text{Cash Flow from Operations} = -12,000 + 16,800 - 2,000 + 3,600 - 2,600 - 2,900
\]

\[
= 16,800 - 12,000 - 2,000 + 3,600 - 2,600 - 2,900 = 900
\]

Thus, **the cash flow from operations is $900**.

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### **Question 2: Transactions Affecting Cash Flow**

This question is asking which transaction impacts the cash flows of a business. The options are:

1. **Exchanging common stock for equipment:** This is a non-cash transaction (no cash involved).
2. **Retiring outstanding bonds by issuing new common stock:** This is also a non-cash financing activity (no cash involved).
3. **The declaration of a cash dividend:** Declaring a dividend doesn’t affect cash flow until it’s paid.
4. **The issuance of common stock for cash:** This is a cash inflow from financing activities, as the company receives cash in exchange for the stock.

The correct answer is **Option 4: The issuance of common stock for cash**, which increases cash flow.

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Would you like further explanation or have any questions?

### Related Questions:
1. What are other non-cash items besides depreciation that impact cash flow?
2. How does the change in working capital affect the cash flow statement?
3. What is the difference between the direct and indirect method of calculating cash flow?
4. Can a company have positive cash flow even with a net loss?
5. Why is it important to separate operating cash flow from investing and financing activities?

#### Tip:
When adjusting net income for cash flow, remember that increases in assets reduce cash flow, while increases in liabilities increase cash flow.

Learn how to calculate cash flow from operations using the indirect method, factoring in depreciation, changes in current assets, and liabilities. This detailed explanation also covers which business transactions affect cash flow. Suitable for university-level accounting students.

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