A company's income statement showed the following: income before taxes, $150,000; income taxes paid, $26,000; depreciation expense, $30,000; and gain on sale of property, plant and equipment, $14,000. An examination of the company's current assets and current liabilities showed the following changes as a result of operating activities: accounts receivable decreased $9,400; merchandise inventory increased $18,000; prepaid expenses decreased $6,200; accounts payable increased $3,400. Calculate the net cash provided or used by operating activities.

Question

Quizplus · Accepted Answer

The net cash provided or used by operating activities is computed using the indirect method.

Starting with income before taxes: 
- Add back depreciation expense = $150,000 + $30,000 = $180,000
- Subtract gain on sale of property, plant, and equipment = $180,000 - $14,000 = $166,000
- Adjustments for changes in current assets and liabilities: 
    - Decrease in accounts receivable = $166,000 + $9,400 = $175,400
    - Increase in merchandise inventory = $175,400 - $18,000 = $157,400
    - Decrease in prepaid expenses = $157,400 + $6,200 = $163,600
    - Increase in accounts payable = $163,600 - $3,400 = $160,200

Therefore, the net cash provided or used by operating activities is $141,000 ($160,200 increase in accounts payable - $150,000 income taxes paid).

A Company's Income Statement Showed the Following: Income Before Taxes