The comparative statements of financial position of Apollo Rocket, Inc. show a net increase in inventory of $79,000 and a net decrease in accounts payable of $42,000 during 2014. In computing net cash from operating activities under the indirect method, profit for 2014 should be:
A) Increased by $37,000.
B) Reduced by $37,000.
C) Increased by $121,000.
D) Reduced by $121,000.

Question

Quizplus · Accepted Answer

In the indirect method, an increase in inventory is subtracted from net income, and a decrease in accounts payable is also subtracted. Therefore, $79,000 (increase in inventory) + $42,000 (decrease in accounts payable) = $121,000 reduction.

The Comparative Statements of Financial Position of Apollo Rocket, Inc