Question

Leather Shop earned net income of $ 57, 000 after deducting depreciation of $ 5, 000 and all other expenses. Current assets decreased by $ 4, 000, and current liabilities increased by $ 8, 000. How much was Leather Shop's cash provided by operating activities (indirect method)?

A. $ 40, 000
B. $ 66, 000
C. $ 48, 000
D. $ 74, 000

Answer 1

Leather Shop's cash provided by operating activities, calculated using the indirect method, totals D)$74,000. This is found by adding back the depreciation to net income and adjusting for the changes in current assets and current liabilities.

Step-by-step explanation:

The question relates to calculating the cash provided by operating activities using the indirect method. In this case, Leather Shop's net income was $57,000. To adjust for non-cash transactions, we add back the depreciation of $5,000.

Additionally, we consider changes in working capital: a decrease in current assets would actually increase cash flow (since assets going down means cash was not used to increase them), and an increase in current liabilities means that cash was not used to settle those liabilities.

These changes are $4,000 and $8,000, respectively. Therefore, the total cash provided by operating activities would be net income plus depreciation plus the changes in working capital: $57,000 + $5,000 + $4,000 + $8,000 = $74,000.