Question

The following data relate to Edwards Co. for 2016:

Net income: $75,000
Increase in accounts receivable: 7,000
Decrease in prepaid expenses: 3,200
Increase in accounts payable: 5,000
Decrease in taxes payable: 900
Gain on sale of investment: 1,700
Depreciation: 3,500
Loss on sale of equipment: 600

Compute the net cash provided by operating activities for 2016

Answer 1

The net cash provided by operating activities for Edwards Co. in 2016 can be calculated by adjusting the net income for non-cash expenses and changes in working capital, and removing non-operating gains.

Step-by-step explanation:

To compute the net cash provided by operating activities for Edwards Co. in 2016 we start with the net income and adjust for changes in working capital and non-cash expenses.

1. Net cash provided by operating activities begins with net income of $75,000.
2. Add back non-cash expenses: Depreciation of $3,500 and loss on sale of equipment of $600.
3. Adjust for changes in working capital: Increase in accounts receivable is deducted ($7,000), the decrease in prepaid expenses is added back ($3,200), the increase in accounts payable is added ($5,000), and the decrease in taxes payable is deducted ($900).
4. Subtract non-operating gains: Deduct the gain on sale of investment of $1,700 since it is not an operating activity.