A company had net income of $252,000. Depreciation expense is $26,000. During the year, Accounts Receivable and Inventory increased $15,000 and $40,000, respectively. Prepaid Expenses and Accounts Payable decreased $2,000 and $4,000, respectively. There was also a loss on the sale of equipment of $3,000. How much cash was provided by operating activities?
A) $217,000.
B) $224,000.
C) $284,000.
D) $305,000.

Question

Quizplus · Accepted Answer

To calculate the cash provided by operating activities using the indirect method, we start with net income and adjust it for non-cash items and changes in working capital accounts.

Start with net income: $252,000
Add back depreciation: + $26,000
Add loss on sale of equipment: + $3,000
Adjust for changes in working capital accounts: 
Increase in Accounts Receivable: - $15,000
Increase in Inventory: - $40,000
Decrease in Prepaid Expenses: + $2,000
Decrease in Accounts Payable: - $4,000
Cash provided by operating activities: $224,000

A Company Had Net Income of $252,000