Darth Corporation’s most recent income statement shows net sales of $6,000, and Darth’s marginal tax rate is 40 percent. The total expenses reported were $3,200, all of which were paid in cash. In addition, depreciation expense was reported at $800. A further examination of the most recent balance sheets reveals that accounts receivable during that period increased by $1,000. The cash flow from operating activities reported by Darth should be: A) $1,000. B) $1,200. C) $2,000. D) $2,200. Could somebody explain why we cannot use the direct method in this scenario? We have to find the net income and then use the indirect method to find the correct answer.
direct method 1- u do not have all the components. 2. typically indirect method is quicker. (6000-3200-800) * (1-.4) = 1200 NI NI 1200 + Depr 800 - Incr in AR (1000) = 1000 CFO
even by direct method 6000 = Net Sales -1000 = Incr in AR =============== 5000 Expenses = 3200 Tax = (6000-3200-800) * .4 = 800 Net CFO = 5000 - 4000 = 1000