(The effect of asset write-offs on cash from operations, LO 1, 3) Hexham Inc.

(Hexham) wrote off $1,000,000 in assets from its books in its December 31, 2004 income statement. Hexham’s net income for the year, after taking into consideration the write-off, was $3,700,000. During 2004 accounts receivable increased by

$100,000, inventory increased by, $175,000, and accounts payable decreased by

$15,000. Amortization expense in 2004 was $278,000.

Required:

a. What journal entry did Hexham make to record the write-off of the assets?

b. Calculate cash from operations using the indirect method.

c. Suppose that at the last minute, Hexham’s management decided to delay writing off the assets from its books:

i. What would Hexham’s net income be in 2004?

ii. What would Hexham’s cash from operations be in 2004?

d. Explain the differences you found between the net incomes you calculated under c(i) and c(ii).

e. Explain the differences you found between the cash from operations numbers you calculated under c(i) and c(i).