Question

The net income reported on the income statement for the current year was $245,000. Depreciation was $40,000. Account receivable and inventories decreased by $12,000 and $35,000, respectively. Prepaid expenses and accounts payable increased, respectively, by $1,000 and $8,000. How much cash was provided by operating activities?

A) $296,000
B) $339,000
C) $323,000
D) $311,000

Answer 1

To calculate the cash provided by operating activities, start with the net income and adjust for non-cash expenses and changes in working capital. The correct total cash provided by operating activities is $339,000.

Step-by-step explanation:

The question at hand involves calculating the cash provided by operating activities using the indirect method based on the information given in the income statement and changes in balance sheet accounts. To determine this, we start with the net income and adjust for non-cash items and changes in working capital. The cash provided by operating activities in this case is calculated as follows:

Net Income: $245,000
Add: Depreciation: $40,000
Increase in Accounts Payable: $8,000
Decrease in Accounts Receivable: $12,000
Decrease in Inventories: $35,000
Deduct: Increase in Prepaid Expenses: $1,000

The total cash provided by operating activities is calculated by adding net income and depreciation, then adding or deducting the changes in working capital accounts:

Cash Flow from Operating Activities = $245,000 + $40,000 + $8,000 + $12,000 + $35,000 - $1,000
Cash Flow from Operating Activities = $339,000

Therefore, the correct answer is B) $339,000.