Trenton reports tax-exempt income of $230,000 for the year ended December 31, Year 2. It also reports $87,700 depreciation expense and a $5,000 gain on the sale of equipment. Its comparative balance sheet reveals a $35,500 decrease in accounts receivable, a $15,750 increase in accounts payable, and a $12,500 decrease in wages payable. Calculate the new cash provided (used) in operating activities using the indirect method.

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Quizplus · Accepted Answer

The calculation for cash provided (used) in operating activities using the indirect method starts with the tax-exempt income of $230,000. Then, adjustments are made for non-cash items and changes in working capital:- Add back depreciation expense: $87,700- Subtract gain on sale of equipment: -$5,000 (since it doesn't affect cash from operating activities)- Adjust for decrease in accounts receivable (increase in cash): $35,500- Adjust for increase in accounts payable (increase in cash): $15,750- Adjust for decrease in wages payable (decrease in cash): -$12,500So, the calculation is: $230,000 + $87,700 - $5,000 + $35,500 + $15,750 - $12,500 = $351,450.

Trenton Reports Tax-Exempt Income of $230,000 for the Year Ended