A company had net income of $252,000. Depreciation expense was $26,000. During the year, accounts receivable and inventory increased by $15,000 and $40,000, respectively. Prepaid expenses and accounts payable decreased by $2,000 and $4,000, respectively. There was also a loss on the sale of equipment of $3,000. How much was the net cash flow from operating activities on the statement of cash flows using the indirect method?
A) $217,000
B) $224,000
C) $284,000
D) $305,000

Question

Quizplus · Accepted Answer

The net cash flow from operating activities is calculated using the indirect method by starting with the net income and adjusting for non-cash expenses, changes in working capital, and other items. Here's the calculation:- Start with net income: $252,000- Add back depreciation expense (non-cash): $26,000- Add back loss on sale of equipment (non-cash): $3,000- Subtract increase in accounts receivable: -$15,000- Subtract increase in inventory: -$40,000- Add decrease in prepaid expenses (since a decrease in an asset is a cash inflow): -$2,000 (negative because we're reversing the decrease)- Subtract decrease in accounts payable (since a decrease in a liability is a cash outflow): -$4,000Calculation: $252,000 + $26,000 + $3,000 - $15,000 - $40,000 - $2,000 - $4,000 = $224,000

A Company Had Net Income of $252,000