Records for Serenity Sounds show net income of $30,000;depreciation expense of $10,000;and cash dividends paid of $5,000.The cash flow from operating activities on the cash flow statement using the indirect method is:

Question

Quizplus · Accepted Answer

The cash flow from operating activities using the indirect method is computed by adjusting net income for non-cash items and changes in working capital. Starting with net income of $30,000, we add back depreciation expense of $10,000 (which is a non-cash expense), and subtract cash dividends paid of $5,000.

Therefore, the cash flow from operating activities is:

Net income + Depreciation expense - Cash dividends paid 
= $30,000 + $10,000 - $5,000 
= $35,000

However, the question asks for the cash flow from operating activities using the indirect method, so we need to adjust for changes in working capital accounts (such as accounts receivable, accounts payable, etc.) which are not given in the question. Therefore, the best choice is B, which is closest to the calculated cash flow of $35,000.

Records for Serenity Sounds Show Net Income of $30,000;depreciation Expense