Question

Metlock, Inc. had net income of $801000 for the year ending 12/31/2022. Depreciation expense for 2022 is $99000. During the year, accounts receivable and inventory increased $54000 and $144000, respectively. Prepaid expenses and accounts payable decreased $7200 and $14400, respectively. There was also a loss on the sale of equipment of $10800. How much cash was provided by operating activities in 2022 ? $705600 $1015200. $972000. $684000.

Answer 1

The correct answer is $725,800.we need to adjust net income for non-cash expenses and changes in working capital.

The cash provided by operating activities in 2022 can be calculated using the indirect method of the statement of cash flows.

First, we need to adjust net income for non-cash expenses and changes in working capital. Depreciation expense is added back since it is a non-cash expense. The increase in accounts receivable and inventory is subtracted, while the decrease in prepaid expenses and accounts payable is added.

Adjusted net income = Net income + Depreciation expense = $801,000 + $99,000 = $900,000

Next, we calculate the changes in working capital:

Change in working capital = (Increase in accounts receivable + Increase in inventory) - (Decrease in prepaid expenses + Decrease in accounts payable)

= ($54,000 + $144,000) - ($7,200 + $14,400)

= $186,000 - $21,600

= $164,400 (negative because it is a decrease)

Finally, we calculate the cash provided by operating activities:

Cash provided by operating activities = Adjusted net income + Change in working capital - Loss on sale of equipment

= $900,000 + (-$164,400) - $10,800

= $725,800

Therefore, the correct answer is $725,800.