At the beginning of 2018,Baldwin Corporation bought an automobile for $36,000 by issuing a note payable.The automobile has a six-year life and is depreciated using the straight-line method.To determine net cash flow from operating activities for 2018 using the indirect method,net income should be:
A)Increased by $6,000.
B)Decreased by $6,000.
C)Increased by $42,000.
D)Neither increased nor decreased.No adjustments are necessary since no cash was received or paid.

Question

Quizplus · Accepted Answer

Depreciation is a non-cash expense. Under the indirect method, net income is adjusted by adding back non-cash expenses like depreciation to calculate net cash flow from operating activities. The annual depreciation expense is $6,000 ($36,000/6 years), so net income should be increased by $6,000.

At the Beginning of 2018,Baldwin Corporation Bought an Automobile for $36,000