At the beginning of 2009, Baldwin Corporation bought an automobile for $36,000 by issuing a note payable. The automobile has a six-year life and is depreciated using the straight-line method. To determine net cash flow from operating activities for 2009 using the indirect method, net income should be:
A) Increased by $6,000.
B) Decreased by $6,000.
C) Increased by $42,000.
D) Neither increased nor decreased. No adjustments are necessary since no cash was received or paid.

Question

Quizplus · Accepted Answer

The depreciation expense of $6,000 (calculated as $36,000/6 years) is a non-cash expense and should be added back to net income to determine net cash flow from operating activities using the indirect method.

At the Beginning of 2009, Baldwin Corporation Bought an Automobile