Wilma Corporation prepares its statement of cash flows using the indirect method to report operating activities. Net income for the 2011 fiscal year was $634,000. Depreciation and amortization expense of $60,000 and 30,000 respectively were included with operating expenses in the income statement. The following information describes the changes in current assets and liabilities other than cash:

Determine the net cash flow provided (used) by operating activities.

Question

Wilma Corporation prepares its statement of cash flows using the indirect method to report operating activities. Net income for the 2011 fiscal year was $634,000. Depreciation and amortization expense of $60,000 and 30,000 respectively were included with operating expenses in the income statement. The following information describes the changes in current assets and liabilities other than cash: 
 
Determine the net cash flow provided (used) by operating activities.

Quizplus · Accepted Answer

The net cash flow provided by operating activities can be calculated using the indirect method by adjusting net income for non-cash expenses and changes in current assets and liabilities.

Net income: $634,000
Depreciation and amortization: $60,000 + $30,000 = $90,000
Adjustment for changes in current assets and liabilities: 
Increase in accounts receivable: $40,000
Decrease in prepaid expenses: $10,000
Increase in inventory: $12,000
Decrease in accounts payable: $97,700
Net cash flow provided by operating activities: 
= Net income + Depreciation and amortization + Adjustment for changes in current assets and liabilities 
= $634,000 + $90,000 + ($40,000 - $10,000 + $12,000 - $97,700) 
= $723,700

Therefore, the correct answer is C.

Wilma Corporation Prepares Its Statement of Cash Flows Using the Indirect