Question

The net income reported on the income statement for the current year was $240,000. Depreciation was $52,000. Accounts receivable and inventories decreased by $5,000 and $15,000, respectively. Prepaid expenses and accounts payable increased, respectively, by $500 and $14,000. How much cash was provided by operating activities?a. $277,500.b. $287,500.c.$295,500.d.$228,500.

Answer 1

The cash provided by operating activities is calculated by adjusting the net income for changes in working capital and adding back depreciation. The correct calculation provides a result of $325,500, which differs from the options provided in the question.

Step-by-step explanation:

To calculate the cash provided by operating activities, you need to adjust the net income by changes in working capital and add back non-cash expenses such as depreciation. Here's the calculation:

1. Start with Net Income: $240,000.
2. Add back Depreciation: $240,000 + $52,000 = $292,000.
3. Adjust for decrease in Accounts Receivable: $292,000 + $5,000 = $297,000.
4. Adjust for decrease in Inventories: $297,000 + $15,000 = $312,000.
5. Adjust for increase in Prepaid Expenses (which uses cash): $312,000 - $500 = $311,500.
6. Adjust for increase in Accounts Payable (which provides cash): $311,500 + $14,000 = $325,500.

Therefore, the cash provided by operating activities is $325,500, which is not listed in the options provided.

Answer 2

$325,500

Step-by-step explanation:

The preparation of the Cash Flows from Operating Activities—Indirect Method is shown below:

Cash flow from Operating activities - Indirect method

Net income $240,000

Adjustment made:

Add : Depreciation expense $52,000

Add: Decrease in accounts receivable $5,000

Add: Decrease in inventory $15,000

Add: Increase in accounts payable $14,000

Less: Increase in prepaid expenses -$500

Total of Adjustments $85,500

Net Cash flow from Operating activities $325,500

This is the answer and the same is not provided in the given options