Castine reports tax-exampt income of $305,000 for the year ended December 31, Year 2. It also reports $93,700 depreciation expense and a $10,000 loss on the sale of equipment. Its comparative balance sheet reveals a $40,200 increase in accounts receivable, a $10,200 decrease in prepaid expenses, a $15,200 increase in accounts payable, a $12,500 decrease in wages payable, and a $100,000 decrease in notes payable. Calculate the new cash provided (used) in operating activities using the indirect method.

Question

Quizplus · Accepted Answer

Starting with tax-exempt income of $305,000, add back depreciation of $93,700 and the loss on the sale of equipment of $10,000 for a total of $388,700. Then, adjust for changes in current assets and liabilities by adding back the increase in accounts receivable of $40,200 and the decrease in prepaid expenses of $10,200, and subtracting the increase in accounts payable of $15,200, the decrease in wages payable of $12,500, and the decrease in notes payable of $100,000. The final result is $291,000, which represents the net cash provided by operating activities. Therefore, the correct answer is C) $381,400, which is the result of adding the net cash provided by operating activities of $291,000 to the decrease in noncurrent assets of $90,400 (decrease in notes payable of $100,000 minus the loss on the sale of equipment of $10,000).

Castine Reports Tax-Exampt Income of $305,000 for the Year Ended