Question

In preparing a company's statement of cash flows for the most recent year using the indirect method, the following information is available: Net income for the year was $ 53,500 Accounts payable decreased by $19,500 Accounts receivable increased by $26,500 Inventories increased by $6,500 Cash dividends paid were $14,300 Depreciation expense was $21,500 Net cash provided by operating activities was:

Answer 1

The net cash provided by operating activities for the company, calculated using the indirect method, is $22,500. This is determined by adjusting the net income with changes in working capital accounts and adding back non-cash expenses such as depreciation.

Step-by-step explanation:

To calculate the net cash provided by operating activities using the indirect method, start with the net income for the year and adjust for changes in working capital and non-cash expenses. Here are the adjustments to the net income of $53,500:

• Add back the depreciation expense, which is a non-cash expense: $21,500
• Deduct the increase in accounts receivable, which represents earnings that have not been collected in cash: -$26,500
• Deduct the increase in inventories, which represents cash that has been spent but not expensed in the income statement: -$6,500
• Add the decrease in accounts payable, as this represents cash not spent: -$19,500
• Do not include cash dividends paid, as they are a financing activity not an operating activity.

Using these adjustments, the calculation is as follows:

Net Income: $53,500

+ Depreciation Expense: $21,500

- Increase in Accounts Receivable: -$26,500

- Increase in Inventories: -$6,500

- Decrease in Accounts Payable: -$19,500
Net Cash Provided by Operating Activities: $22,500