Question

An analyst compiled the following information Parker Ltd for the year ended December 31 2013:

Net Income was $1,600,000

Depreciation expense was $270,000

Amortization expense for a patent was $30,000

Interest paid was $250,000

Income taxes paid were $100,000

Ordinary shares were sold for $200,000

Preference shares (8% annual dividend) were sold at Par value of $250,000

Dividends of $50,000 were paid on ordinary shares

Preference dividends of $20,000 were paid

Equipment with a book value of $75,000 was sold for $100,000

Using the indirect method, what was Parker’s net cash flow from operating activities for the year ended December 31 2013, assuming that Parker classifies interest paid and dividends paid as a financing activity.

a.$2,145,000

b. $2,075,000

c. $2,025,000

d. $2,125,000

e. $2,175,000

Answer 1

Solution: The answer is d) $ 2,125,000

Calculation of Net cash flow from operating activity

Parker Ltd
Statement of Cash Flows (Indirect Method)
For the Year Ended December 31,2013
Cash flows from operating activities:
Net income	$        1,600,000
Adjustments to reconcile to operating cash flow
Depreciation expense	$            270,000
Amortization Expense	$              30,000
Interest expense	$            250,000
Gain on sale of Equipment	$            (25,000)
Net Cash flows from operating activities	$        2,125,000

Note:

1) Income tax paid is already deducted from net income, no need to considered here.

2) Dividends are financing activities, no need to considered here.

So, Remaining Options are not correct.