statement of cash flow in indirect method?

Question

End of the year information for the Spring Company:
Income statement data: 2001 2000
Depriciation Expense....$20,000
Loss on sale of Equipment...$10,000
Net Income...$200,000

Balance sheet data: 2001
Account Receivable....$40,000 $45,000 (2000)
Merchandise inventory.....$30,000 $20,000 (2000)
Account payabl.....$25,000 $ 23000 (2000)
Accrued interest payable.....$8,000 $ 9000 (2000)
Spring Company uses the indirect method for the statement of cash flows.Net cash flows from operating activities for 2001 would be----------------------
a)$196,000
b)$200,000
c)$206,000
d)$226,000

Answer 1

Before I start, you should note that there is no interest expense this year given in the income statement data, but there is a drop in accrued interest payable of $1k. That means that the interest was accrued in the past and $1k was paid out this year. Interest received and paid must be disclosed separately in the cash flow statement. So now we can start.

Cash flows from operating activities:

Net income 200,000
Adjustments for:
Depreciation 20,000
Loss on sale of equipment 10,000
(Subtotal) 230,000
Decrease in AR 5,000
Increase in inventories ( 10,000)
Increase in AP 2,000
Cash generated from opns 227,000 (this is a subtotal)
Interest paid ( 1,000)
Net cash from op'g activities 226,000 (final total)

The answer is (d)