Question

A company reported net income of $200,000 during 2019. The company reported depreciation expense of $35,000, patent amortization of $10,000 and a $5,000 loss on the sale of equipment. Using the indirect method, how much is the company’s cash ow from operating activities?A. $245,000.B. $250,000.C. $240,000.D. $235,000.

Answer 1

Answer:

The correct answer is B

Explanation:

The company’s cash flow from operating activities for the year 2019 is computed as follows;

Net income $200,000

Add:

Depreciation 35,000

Amortization of patent 10,000

loss on the sale of equipment 5,000

Total cash provided by operating activities $250,000

*Depreciation expense, amortization expense and loss on sale on equipment are all non cash transaction which cause a decrease on net income. Thus if we want to know the actual cash activities for the year, we have to add it back to the Net income to arrive the correct answer.