Question

Noah Corporation determines operating cash flows by the indirect method. (Click the icon to view the income statement.) (Click the icon to view the balance sheet.) Noah's net cash provided by operating activities during 2017 was O A. $53,500 OB. $66,000 O C. $59,000 OD. $3,000

Answer 1

Option (C) is correct

In calculating the cash flows from operating activities from indirect method, we will start with the net income. We will add back the non cash item of depreciation & deduct gain on sale of equipment in it. Then we will adjust the amount for increase or decrease in cash due to increase or decrease in current assets or current liabilities.Like, an increase in current assets will reduce cash, so we will deduct it and a decrease in current assets will increase cash, so we will add it. Similarly, an increase in current liabilities will increase cash, so it will be added and a decrease in current liabilities will reduce cash, so it will be deducted.

Calculation of cash flows from operating activities for 2017:

Description	Amount	Amount
Operating activities:
Net income	$53500
Adjustments to reconcile net income to net cash from operating activities
Add: Depreciation	$8500
Less: Gain on sale of equipment	($10000)
Add: Decrease in accounts receivable	$6000
Less: Increase in inventory	($1000)
Less: Decrease in accounts payable	($1000)
Add: Increase in accrued liabilities	$3000
Net cash flows from operating activities		$59000