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 calculate the net cash flow from operating activities, we need to start with net income and make adjustments for non-cash expenses and changes in current assets and liabilities.

Starting with net income of $265,000, we add back depreciation of $40,000 and subtract the increase in accounts receivable of $57,000, the increase in inventory of $48,000, and the increase in accounts payable of $5,000.

Net cash flow from operating activities = $265,000 + $40,000 - $57,000 - $48,000 - $5,000 = $195,000.

Therefore, the best answer choice is C) $225,000 as it is the closest option.

Monarch Company Uses the Indirect Method to Prepare Its Statement