Question

In preparing a company's statement of cash flows using the indirect method, the following information is available: Net income Accounts payable decreased by Accounts receivable increased by Inventories increased by Depreciation expense $58,000 21,000 28,000 8,000 36,000 Net cash provided by operating activities was: Multiple Choice

0 $37,000
0 $63,000.
0 $79,000
0 $95,000
0 $58,000.

Answer 1

Starting with the net income, after adjusting for an increase in non-cash depreciation, and changes in accounts receivable, inventories, and payable, the final net cash provided by operating activities is determined. The final calculated cash flow from operating activities is $37,000.

Step-by-step explanation:

To calculate the net cash provided by operating activities using the indirect method, we begin with the net income and make adjustments for changes in working capital and non-cash expenses. Firstly, we add back the depreciation expense as it's a non-cash charge. Changes in accounts receivable, payable, and inventories must be taken into account to reflect the cash that was actually generated or used. Increases in accounts receivable and inventories are uses of cash, whereas a decrease in accounts payable is a use of cash too, since it indicates that cash was used to reduce liabilities.

The calculation is as follows:

• Net income: $58,000
• Add: Depreciation expense: $36,000
• Subtract: Increase in Accounts Receivable: $28,000
• Subtract: Increase in Inventories: $8,000
• Subtract: Decrease in Accounts Payable: $21,000

Adding and subtracting the above figures, the final answer to the net cash provided by operating activities is $37,000

The two line explanation: The indirect method starts with net income and adjusts for changes in working capital accounts and non-cash expenses to calculate net cash provided by operating activities. After accounting for these changes, the final cash flow from operations is calculated to be $37,000.