Alvez reports net income of $305,000 for the year ended December 31. It also reports $93,700 depreciation expense and a $10,000 loss on the sale of equipment. Its comparative balance sheet reveals a $40,200 increase in accounts receivable, a $10,200 decrease in prepaid expenses, a $15,200 increase in accounts payable, a $12,500 decrease in wages payable, a $75,000 increase in equipment, and a $100,000 decrease in notes payable. Calculate the net increase in cash for the year.
A) $281,400.
B) $381,400.
C) $206,400.
D) $406,400.
E) $216,400.

Question

Quizplus · Accepted Answer

The net increase in cash is calculated by adjusting the net income for non-cash expenses and changes in working capital. Start with net income of $305,000, add back non-cash depreciation of $93,700, and the loss on sale of equipment of $10,000. Adjust for changes in working capital: subtract the increase in accounts receivable ($40,200), add the decrease in prepaid expenses ($10,200), add the increase in accounts payable ($15,200), and subtract the decrease in wages payable ($12,500). The increase in equipment and decrease in notes payable are financing and investing activities, not operating cash flow adjustments. The net increase in cash is $206,400.

Alvez Reports Net Income of $305,000 for the Year Ended