Question

Use the following information to calculate net cash flow from operating activities using indirect method:

$\begin{array}{cc}\text{Net Income}& 7,000\\ \text{Depreciation Expense}& 1,000\\ \text{Increase in Accounts Receivable}& 4,400\\ \text{Increase in Prepaid Rent}& 7,000\\ \text{Decrease in Prepaid Insurance}& 1,300\\ \text{Increase in Accounts Payable}& 14,000\\ \text{Increase in Wages Payable}& 1,000\\ \text{Decrease in Income Tax Payable}& 700\\ \text{Gain on Sale of Equipment}& 1,800\end{array}$

• A. 10,400
• B. 10,000
• C. 9,600
• D. None of these

Answer 1

The correct option is A

10,400

$\begin{array}{cc}\text{Cash flows from Operating Activities}:& \\ \text{Net Income}& 7,000\\ \text{Depreciation Expense}& 1,000\\ \text{Gain on Sale of Equipment}& -1,800\\ \text{Increase in Accounts Receivable}& -4,400\\ \text{Increase in Prepaid Rent}& -7,000\\ \text{Decrease in Prepaid Insurance}& 1,300\\ \text{Increase in Accounts Payable}& 14,000\\ \text{Increase in Wages Payable}& 1,000\\ \text{Decrease in Income Tax Payable}& -700\\ \text{Net Cash Flow from Operating Activities}& 10,400\end{array}$