Question

MERNA Company reported net income of $30,000; depreciation expenses of $19,000; an increase in Accounts Payable of $2,000; and an increase in current notes receivable of $3,000. Net Cash Flows from operating activities under the indirect method is:
Select one:
a. $49,000.
b. $50,000.
c. $44,000.
d. $48,000.

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Abdul-Rahim Taysir

Answer 1

Calculation of cashflow from operating activities under indirect method:

Under indirect method we calculate cashflow from operating activities by adjusting profit or loss for the effects of:

a) changes during the period in inventories and operating receivables and payables;

b) non-cash items such as depreciation, provisions, deferred taxes, unrealised foreign currency gains and losses, and undistributed profits of associates and,

c) all other items for which the cash effects are investing or financing cash flows.

So given

Net income. -. $30,000

+ depreciation. -. $19,000

+ increase in accounts payable. -. $2,000

- increase in current notes receivable - ($3,000)

Cash flow from operating activities = $48,000

So option "d" is correct option.