Allen Company's 2014 income statement reported total revenues, $850,000 and total expenses (including $40,000 depreciation) of $720,000. The 2013 balance sheet reported the following: accounts receivable-beginning balance, $50,000 and ending balance, $40,000; accounts payable-beginning balance, $22,000 and ending balance, $28,000. Therefore, based only on this information, how much was the 2014 net cash provided by operating activities?

Question

Quizplus · Accepted Answer

To calculate net cash provided by operating activities, we use the indirect method which starts with net income and adjusts for non-cash expenses and changes in working capital.

First, we need to calculate the net income:

Total revenues - Total expenses = Net income 
$850,000 - $720,000 = $130,000

Next, we need to make adjustments for non-cash expenses, which in this case is depreciation of $40,000:

Net income + Depreciation = Adjusted net income 
$130,000 + $40,000 = $170,000

Now we need to account for changes in working capital:

Accounts receivable - ($50,000 - $40,000) = $10,000 increase 
Accounts payable - ($28,000 - $22,000) = $6,000 increase

Increase in working capital = $10,000 - $6,000 = $4,000

Therefore, the net cash provided by operating activities is calculated as:

Adjusted net income + Increase in working capital = Net cash provided by operating activities 
$170,000 + $4,000 = $174,000

Therefore, the answer is D) $186,000.

Allen Company's 2014 Income Statement Reported Total Revenues, $850,000 and Total