Question

The net income for Sheridan Company for 2020 was $350,000. For 2020, depreciation on plant assets was $69,700, and the company incurred a loss on disposal of plant assets of $13,300. Compute net cash provided by operating activities under the indirect method, assuming there were no other relevant changes in the company’s accounts. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Answer 1

350,000 net income

+69,700 depreciation

+13,300 loss on disposal

433,000 adjusted income

no change in working capital

cash generated from operating activities 433,000

Step-by-step explanation:

We need to remove from the net incoem the non-monetary terms

The depreication is an accounting concept, it doesn't involve cash disbursements, so it is added.

Also the los son disposal doesn't involve using cash so is also removed.

Rule:

to remove a non-monetary expense we should add it.

to remove a non-monetary gain we should decrease it.