Cashman Company reported net income of $265,000 for the year ended 12/31/15. Included in the computation of net income were: depreciation expense, $45,000; amortization of a patent, $24,000; income from an investment in common stock of Linda Inc., accounted for under the equity method, $36,000; and amortization of a bond premium, $9,000. Cashman also paid a $60,000 dividend during the year. The net cash provided by operating activities would be reported at
A) $289,000.
B) $241,000.
C) $229,000.
D) $181,000.

Question

Quizplus · Accepted Answer

To calculate the net cash provided by operating activities, start with the net income of $265,000. Add back non-cash expenses: depreciation expense ($45,000) and amortization of a patent ($24,000). The amortization of a bond premium ($9,000) is not added back because it is related to financing activities, not operating activities. Subtract the income from the investment accounted for under the equity method ($36,000) because it is an investing activity, not an operating cash flow. Dividends paid ($60,000) are also not considered because they are financing activities. Thus, the calculation is $265,000 + $45,000 + $24,000 - $36,000 = $298,000.

Cashman Company Reported Net Income of $265,000 for the Year