During 2014, the Bowtie Company reported net income of $1,872 million, depreciation expense of $1,412 million and $978 million paid for purchases of property, plant and equipment. What would be the effect on cash flows from operating activities during 2014?
A) Cash flows from operating activities would be increased by depreciation expense and decreased by the property, plant and equipment purchases.
B) Cash flow from operating activities would be increased by depreciation expense and by the property, plant and equipment purchases.
C)Cash flow from operating activities would be increased by depreciation expense but the property, plant and equipment purchases would have no effect on cash flow from operating activities.
D)Depreciation is a noncash expense and would not be used to calculate cash flow from operating activities.

Question

Quizplus · Accepted Answer

Depreciation is a non-cash expense and is added back to net income in the operating activities section of the cash flow statement. Purchases of property, plant, and equipment are investing activities and do not affect cash flows from operating activities.

During 2014, the Bowtie Company Reported Net Income of $1,872