For the year ending December 31,2014,Martha Company reports net income of $23,000 and depreciation expense of $7,000.The income tax expense for the year ending December 31,2014 is $20,000.The following data is available:
$\begin{array}{lll}&\text { December 31, } 2013&\text { December 31, } 2014\
\text { Cash } & \$ 25,000 & \$ 16,000 \
\text { Accounts Receivable } & \$ 25,000 & \$ 45,000 \
\text { Inventories } & \$ 60,000 & \$ 100,000 \
\text { Fixed Assets } & \$ 330,000 & \$ 581,000 \
\text { Accumulated Depreciation } & \$ 110,000 & \$ 101,000 \
\text { Accounts Payable } & \$ 6,000 & \$ 74,000 \
\text { Wages Payable } & \$ 4,000 & \$ 25,000
\end{array}$
What is the net cash provided (used)by operating activities for the year ended December 31,2014? Assume the indirect method is used.
A) $(20,000)
B) $23,000
C) $59,000
D) $69,000

Question

Quizplus · Accepted Answer

Net cash provided by operating activities is calculated using the indirect method as follows:- Start with net income: $23,000- Add back non-cash expenses (depreciation): $7,000- Adjust for changes in working capital:  - Increase in Accounts Receivable: $(45,000 - 25,000) = $(20,000)  - Increase in Inventories: $(100,000 - 60,000) = $(40,000)  - Increase in Accounts Payable: $(74,000 - 6,000) = $68,000  - Increase in Wages Payable: $(25,000 - 4,000) = $21,000Net cash provided by operating activities = $23,000 + $7,000 - $20,000 - $40,000 + $68,000 + $21,000 = $59,000

For the Year Ending December 31,2014,Martha Company Reports Net Income