Castine reports income before taxes of $310,000 and income taxes paid of $5,000 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, a $75,000 increase in equipment, and a $100,000 decrease in notes payable. Calculate the increase in cash for Year 2.

Question

Quizplus · Accepted Answer

To calculate the increase in cash, we need to use the formula: 
Increase in Cash = Income before taxes - Income taxes paid + Depreciation expense + Loss on sale of equipment + Decrease in accounts receivable + Increase in prepaid expenses + Increase in accounts payable + Decrease in wages payable + Increase in equipment - Decrease in notes payable

Substituting the values, we get:

Increase in Cash = $310,000 - $5,000 + $93,700 - $10,000 + ($40,200) - ($10,200) + $15,200 - ($12,500) +$75,000 - ($100,000)
Increase in Cash = $206,400

Therefore, the increase in cash for Year 2 was $206,400. Option D is the correct answer.

Castine Reports Income Before Taxes of $310,000 and Income Taxes