The comparative balance sheets of Apollo Rocket,Inc.show a net increase in inventory of $79,000 and a net decrease in accounts payable of $42,000 during 2018.In computing net cash flow from operating activities under the indirect method,net income for 2018 should be:
A)Increased by $37,000.
B)Reduced by $37,000.
C)Increased by $121,000.
D)Reduced by $121,000.

Question

Quizplus · Accepted Answer

In the indirect method, an increase in inventory is a use of cash and decreases net cash flow, while a decrease in accounts payable is also a use of cash. Therefore, net income should be reduced by the sum of these amounts: $79,000 + $42,000 = $121,000.

The Comparative Balance Sheets of Apollo Rocket,Inc