Question

Moore Inc.'s net income last year was $56,000 including depreciation expense of $23,000. Changes in selected balance sheet accounts for the year appear below: Increases (Decreases) Accounts receivable (8,000) Inventory 6,000 Accounts payable 2,000 Based on this information, the net cash flows from operating activities under the indirect method would be Question 4 options: $75,000 $83,000 $95,000 $60,000

Answer 1

Based on the information available for Moore Inc. , we can prepare the Cash flow statement under indirect method is as follows:-

MOORE INC - INDIRECT METHOD OF CASH FLOW
Particulars	Amount	Amount
Cash Flow from Operating Activities
Net Income		56,000
Reconciliation items:-
Accounts Payable increase	2,000
Depreciation expense	23,000
Accounts receivable decrease	8,000
Inventory increase	(6,000)
Net effect of reconciliation items		27,000
Net Cash provided by Operating activities		83,000

Based on the above information, the correct answer is Option B - $83,000

The decrease in accounts receivable and increase in accounts payable represents an increase in cash balance while increase in inventory represents outflow of cash. Depreciation is added back to Net income because it is a non cash operating expense.

Option A is incorrect based on the above calculation.

Option B- $83,000 is the correct answer and is the Net cash flows from operating activities under the indirect method.

Option C is incorrect. The increase in inventory should be deducted as it is a cash outflow. Hence this option is incorrect.

Option D is incorrect because depreciation expense should be added back because it is a non cash expense that has been deducted in arriving at the net income .