Advance Systems Inc.reported the following information for Year 1 and Year 2:
If Advance Systems uses the indirect method to prepare the operating activities section of the statement of cash flows, what amount will be reported as net cash flows from operating activities for Year 2?

A) $72,000
B) $78,000
C) $94,000
D) $98,000

Question

Advance Systems Inc.reported the following information for Year 1 and Year 2:
 If Advance Systems uses the indirect method to prepare the operating activities section of the statement of cash flows, what amount will be reported as net cash flows from operating activities for Year 2?

A) $72,000 
B) $78,000 
C) $94,000 
D) $98,000

Quizplus · Accepted Answer

To calculate net cash flows from operating activities using the indirect method, we need to adjust net income for non-cash expenses and changes in current assets and liabilities. 
Starting with net income for Year 2: $76,000 
Add back depreciation expense: $22,000 
Decrease in accounts receivable: $2,000 
Increase in inventory: -$10,000 
Increase in accounts payable: $4,000 
Net cash flows from operating activities for Year 2: $94,000