Question

The net loss reported on the income statement for the current year was $10,000. Depreciation was $40,000. Accounts receivable and inventories decreased by $12,000 and $35,000, respectively. Treasury stock was purchased for $50,000, and prepaid expenses and accounts payable increased by $1,000 and $8,000, respectively. Based on this information, how much cash was provided by operating activities

Answer 1

Cash was provided by operating activities is $84,000.

Step-by-step explanation:

To arrive at the cash was provided by operating activities, we need to prepare an extract of statement of cash flows (operating activities) as follows:

Statement of cash flows (extract)

Net loss ($10,000)

Add: Depreciation $40,000

Decrease in accounts receivable $12,000

Decrease in inventories $35,000

Increase in accounts payable $8,000

Less: Increase in prepaid expenses $1,000

Net cash flows from operating activities $84,000

Note that the purchase of treasury stock of $50,000 belongs to cash flows from financing activities.

Answer 2

$104,000

Step-by-step explanation:

The cash flow statement categories the company's transactions in a financial period into 3 groups; these are operating, investing and financing.

The net profit/loss, depreciation, changes in current assets (other than cash) and liabilities are considered as operating activities including income taxes.

The sale of assets, interest received, purchase of investments are examples of investing activities while the issuance of stocks, debt principal deduction (loan settlement), issuance of debt securities etc are examples of financing activities.

An increase in assets other than cash is an outflow while an increase in liabilities is an inflow. Depreciation and other non-cash expenses deducted in the income statements are added back while the non-cash income such gain on asset are deducted from net income.

As such,

Cash provided by operating activities

= $10,000 + $40,000 + $12,000 + $35,000 - $1,000 + $8,000

= $104,000