Multiple Choice
Which of the following adjustments is made to net income when preparing the operating activities section of the statement of cash flows using the indirect method?
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13. Statement of Cash Flows
Operating Activities: Indirect Method
Multiple Choice
A company reported net income of \$250,000. Depreciation and amortization totaled \$120,000. In total, Current assets excluding cash increased by \$25,000 and current liabilities increased by 16,000. The company also had a gain on the sale of equipment of \$4,000. Using the indirect method, what are cash flows from operating activities?
A
\$357,000
B
\$365,000
C
\$375,000
D
\$383,000
Verified step by step guidance1
Start with the net income of \$250,000 as the base for calculating cash flows from operating activities using the indirect method.
Add back non-cash expenses such as depreciation and amortization, which total \$120,000, to the net income.
Adjust for changes in working capital: Subtract the increase in current assets (excluding cash) of \$25,000, as this represents a use of cash.
Add the increase in current liabilities of \$16,000, as this represents a source of cash.
Subtract the gain on the sale of equipment of \$4,000, as this gain is included in net income but does not affect cash from operating activities.
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