The activities for the year ended December 31,2018 included the following:
∙ 2018's net income after taxes totaled $125,000.
∙ Accounts receivable Increased $32,000
∙ Recorded a $10,000 goodwill impairment loss during the year
∙ Inventory decreased $8,000
How much would be presented as cash flow from operations?
A)$85,000
B)$111,000
C)$127,000
D)$135,000

Question

Quizplus · Accepted Answer

Cash flow from operations is calculated using the indirect method. Starting with net income, we add back non-cash expenses (such as depreciation) and subtract changes in current assets and current liabilities.

Starting with net income of $125,000: 
- Add back $10,000 goodwill impairment loss 
- Subtract increase in accounts receivable of $32,000 (since this represents money that we haven't actually received yet) 
- Add decrease in inventory of $8,000 (since this means we didn't spend as much money buying new inventory)

$125,000 + $10,000 - $32,000 + $8,000 = $111,000

Therefore, the answer is B.

The Activities for the Year Ended December 31,2018 Included the Following