Question

lincoln restaurants reported net income in 2022 of $47.60 million and depreciation expense of $50.50 million. it also reported additions to property and equipment of $164.60 million. using the indirect method of preparing the statement of cash flows, how will these items impact the 2022 statement of cash flows?

Answer 1

In the indirect method, net income and depreciation are added back to operating activities, while additions to property and equipment are subtracted.

Step-by-step explanation:

In the indirect method of preparing the statement of cash flows, net income is adjusted for non-cash expenses like depreciation. So, the net income of $47.60 million will be added back to the operating activities section of the statement of cash flows. The depreciation expense of $50.50 million will be added back as a non-cash expense, also in the operating activities section.

When it comes to additions to property and equipment, this is a cash outflow and will be deducted from the operating activities section. The amount of $164.60 million will be subtracted as a cash flow from operating activities.

Therefore, the net effect on the 2022 statement of cash flows would be an increase in net cash provided by operating activities, primarily due to adding back net income and depreciation, and a decrease in net cash used in investing activities due to deducting additions to property and equipment.