Question

The following data are available for Allen Clapp Corporation: Net income $200,000 Depreciation expense 40,000 Dividends paid 60,000 Gain on sale of land 10,000 Decrease in accounts receivable 20,000 Decrease in accounts payable 30,000 How much is cash provided by operating activities using the indirect method for the statement of cash flows?A. $240,000 B. $280,000 C. $160,000 D. $220,000

Answer 1

D. $220,000

Step-by-step explanation:

In order to calculate the the cash flow from operations we will start with net income and add all non cash expenses and then subtract any increase in working capital and add any decrease in working capital. We will add any loss on sale of asset and subtract any gain on sale of asset.

Our net income is 200,000, we will add 40,000 to it because depreciation is a non cash expense, after that we will subtract 10,000 because it is gain on sale of land/asset, after that we will add 20,000 because when the accounts receivable decreases the working capital also decreases, after that we will subtract 30,000 because when the accounts payable decreases the working capital increases. We will ignore dividend payments because that is a cash flow from financing activities and not related to cash flow from operating activities.

200,000+40,000-10,000+20,000-30,000= 220,000