Question

Based on this income statement for Company E for the year ending December 31, 2014, what adjustment would need to be made to Net Income to account for Depreciation and Amortization in calculating cash flow from Operating Activities using the indirect method?
COMPANY E INCOME STATEMENT For the Year Ending 12/31/14 Net Sales 600,000 Cost of Sales Materials Cost Labor Cost Plant & Equipment Depreciation Other Overhead Costs GROSS PROFIT 100,000 110,000 60,000 90,000 240,000 Operating Expenses Research and Development Salaries& Benefits Amortization Other R&D Costs 80,000 20,000 130,000 Marketing and Sales Expenses Salaries & Benefits Advertising Expense Other M&S Costs 40,000 26,000 12,000 General and Administrative Expense Salaries & Benefits Office Equipment Depreciation Other G&A Costs TOTAL OPERATING EXPENSES OPERATING INCOME Other Income (Expense) Net INCOME BEFORE TAXES Income Tax Expense NET INCOME 27,000 6,000 10,000 351,000 (111,000) 50,000 (61,000) (18,300) $ (42,700) Select the appropriate adjustment to the statement of cash flows from the options below.
a) Decrease by $66,000
b) Decrease by $86,000
c) Increase by $86,000
d) Increase by $66,000

Answer 1

A) Decreased by $66,000