Hamlet Ltd.adheres to ASPE.On Hamlet Ltd.'s statement of cash flows (indirect method)for calendar 2017, cash flows from operating activities were reported at $154,000.The statement included the following items: depreciation on plant assets of $60,000; impairment of goodwill of $10,000; and cash dividends paid of $72,000.Based only on the information given above, Hamlet's net income for 2014 was
A)$12,000.
B)$84,000.
C)$154,000.
D)$214,000.

Question

Quizplus · Accepted Answer

To calculate net income using the indirect method, we start with the reported cash flows from operating activities and make adjustments for non-cash items such as depreciation and impairment, as well as any gains/losses from investing or financing activities. 
In this case, we know that cash flows from operating activities were $154,000, and we also know that depreciation on plant assets was $60,000 and impairment of goodwill was $10,000. To adjust for these non-cash items, we add them back to the reported cash flows from operating activities: 
Net Income + Depreciation + Impairment = Cash Flows from Operating Activities
Net Income + $60,000 + $10,000 = $154,000
Net Income = $84,000 
Therefore, the correct answer is B) $84,000.