Reliance Corporation has provided the following information for the year ended D

Question

Reliance Corporation has provided the following information for the year ended December 31, 2016:

The equipment account balance increased $218,000.

The equipment accumulated depreciation account balance increased $36,800.

Equipment costing $53,600 was sold during the year resulting in a $12,700 gain.

Depreciation expense recorded on the equipment during the year was $66,800.

Which of the following statements is correct with respect to determining cash flow from operating activities?

Using the indirect method, net income is decreased by the $30,000 sales price of the equipment.

Using the indirect method, net income is increased by the $66,800 depreciation expense.

Using the indirect method, net income is increased by the $12,700 gain on the sale of the equipment.

Using the indirect method, net income is increased by the $36,800increase in the accumulated depreciation account balance.

Explanation / Answer

Answer is:

Using the indirect method, net income is increased by the $66,800 depreciation expense.

Depreciation expense is non cash item and it is added to net income while computing cash flow from operating activitties.

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