Question

Nelson Company's net income last year was $18,000 and cash dividends declared and paid to the company stockholders was $12,000.

Charges in selected balance sheet accounts for the year appear below:Increase(Decreases)Debit balances:Accounts receivable $(6,000)Inventory 5,000Long-term investments 20,000Credit balances:Accumulated depreciation 12,000Accounts payable 8,000Accrued liabilities (7,000)Taxes payable (3,000)Based solely on this information, the net cash flows from operating activities under the indirect method on the statement of cash flows would be :
a. $7,000
b. $30,000
c. $17,000
d. $29,000

Answer 1

d. $29,000

Step-by-step explanation:

Cash flows from operating activities under the indirect method = Profit before tax + Depreciation and amortization of fixed assets and goodwill + Provisions + Foreign exchange losses arising from the revaluation of monetary accounts denominated in foreign currency + interest expenses - (Increase) decrease in receivables - (Increase) decrease in inventories + Increase in payables + Increase in prepaid expenses - Interest paid - Corporate income tax paid

In this case, the cash flow from operating activities = net income 18,000 - Accounts receivable (6,000) - inventory 5,000 + Accumulated depreciation 12,000 + Accounts payable 8,000 + Accrued liabilities (7,000) + Taxes payable (3,000)

= 18,000 + 6,000 - 5,000 + 12,000 + 8,000 + (7,000) + (3,000)

= 29,000