Monarch Company uses the indirect method to prepare its statement of cash flows.The following information has been gathered for the current period: On the basis of the above information only,Monarch Company's statement of cash flows shows net cash flow from operating activities to be:
A)$187,000.
B)$333,000.
C)$225,000.
D)$361,000.

Question

Monarch Company uses the indirect method to prepare its statement of cash flows.The following information has been gathered for the current period:  On the basis of the above information only,Monarch Company's statement of cash flows shows net cash flow from operating activities to be:
A)$187,000. 
B)$333,000. 
C)$225,000. 
D)$361,000.

Quizplus · Accepted Answer

To find the net cash flow from operating activities using the indirect method, we start with the net income and make adjustments for non-cash items and changes in current assets and liabilities.

Starting with net income of $250,000:
- Add back depreciation expense of $110,000 (which is a non-cash expense)
- Subtract the increase in accounts receivable of $26,000 (since an increase in AR decreases cash flow)
- Add the increase in accounts payable of $100,000 (since an increase in AP increases cash flow)
- Subtract the increase in income taxes payable of $9,000 (since an increase in taxes payable decreases cash flow)

Net cash flow from operating activities = $250,000 + $110,000 - $26,000 + $100,000 - $9,000 = $225,000.

Therefore, the correct answer is C.

Monarch Company Uses the Indirect Method to Prepare Its Statement