A Halifax firm generates net income of $530. The depreciation expense is $60 and dividends paid are $80. Accounts payable decrease by $40, accounts receivable decrease by $30, inventory increases by $20, and net fixed assets decrease by $40. What is the net cash from operating activity?
A) $480
B) $530
C) $560
D) $580
E) $600

Question

Quizplus · Accepted Answer

To calculate the net cash from operating activity, start with the net income of $530. Add back the non-cash expense of depreciation ($60). Changes in working capital need to be accounted for: accounts payable decreased ($40) which is a use of cash, accounts receivable decreased ($30) which is a source of cash, and inventory increased ($20) which is a use of cash. The decrease in net fixed assets and dividends paid are not considered in operating activities. Therefore, the calculation is $530 + $60 - $40 + $30 - $20 = $560.

A Halifax Firm Generates Net Income of $530