During 2015, Orton Company earned net income of $464,000 which included deprecia-tion expense of $78,000. In addition, the company experienced the following changes in the account balances listed below: $$\begin{array} { l r l r }
{ \text { Increases } } && { \text { Decreases } } \
\text { Accounts payable } & \$ 45,000 & \text { Accounts receivable } & \$ 12,000 \
\text { Inventory } & 36,000 & \text { Accrued liabilities } & 24,000 \
\quad \text { Prepaid insurance } & 33,000 & &
\end{array}$$ Based upon this information what amount will be shown for net cash provided by operating activities for 2015?
A) $572,000
B) $545,000
C) $365,000
D) $347,000

Question

During 2015, Orton Company earned net income of $464,000 which included deprecia-tion expense of $78,000. In addition, the company experienced the following changes in the account balances listed below: $$\begin{array} { l r l r } 
 { \text { Increases } } && { \text { Decreases } } \
\text { Accounts payable } & \$ 45,000 & \text { Accounts receivable } & \$ 12,000 \
\text { Inventory } & 36,000 & \text { Accrued liabilities } & 24,000 \
\quad \text { Prepaid insurance } & 33,000 & &
\end{array}$$ Based upon this information what amount will be shown for net cash provided by operating activities for 2015?
A) $572,000
B) $545,000
C) $365,000
D) $347,000

Quizplus · Accepted Answer

To calculate the net cash provided by operating activities, start with the net income of $464,000, add back the non-cash expense of depreciation ($78,000), and then adjust for the changes in working capital. Increases in current liabilities (Accounts payable $45,000) add to cash, while increases in current assets (Inventory $36,000 and Prepaid insurance $33,000) reduce cash. Decreases in current assets (Accounts receivable $12,000) add to cash, and decreases in current liabilities (Accrued liabilities $24,000) reduce cash. The net effect of these changes is an increase in cash of $108,000 ($45,000 + $12,000 - $36,000 - $33,000 - $24,000). Adding this to the net income plus depreciation gives $464,000 + $78,000 + $108,000 = $572,000.

During 2015, Orton Company Earned Net Income of $464,000 Which