Question

Harlow Industries reported net income of $25,500 for the current year. during the year, inventory decreased by $8,000, accounts payable decreased by $8,500, depreciation expense was $11,000, and accounts receivable increased by $7,500. if the indirect method is used, what is the net cash provided by operating activities?

O $45,500
O $28,500
O $60,500
O $11,500

Answer 1

To calculate the net cash provided by operating activities using the indirect method, one adds back non-cash expenses like depreciation to the net income and adjusts for changes in working capital. After accounting for the changes in inventory, accounts payable, and accounts receivable, the net cash provided by operating activities for Harlow Industries is $28,500.

Step-by-step explanation:

The question relates to the calculation of net cash provided by operating activities using the indirect method. To arrive at this figure starting from the net income of $25,500, one must adjust for changes in working capital and add back non-cash expenses.

Depreciation expense, which is a non-cash charge, should be added back to the net income. Therefore, starting with the net income of $25,500, we add back depreciation of $11,000. Next, we adjust for changes in working capital: an increase in accounts receivable decreases cash (subtract $7,500), a decrease in inventory increases cash (add $8,000), and a decrease in accounts payable decreases cash (subtract $8,500). The sum of these adjustments gives us the net cash provided by operating activities.

Calculation: $25,500 (net income) + $11,000 (depreciation) - $7,500 (increase in accounts receivable) + $8,000 (decrease in inventory) - $8,500 (decrease in accounts payable) = $28,500.