The net income reported on the income statement for the current year was $1,387,000. Depreciation...

Question:

The net income reported on the income statement for the current year was $1,387,000. Depreciation recorded on plant assets was $262,000. Accounts receivable and inventories increased by $73,000 and $49,000, respectively. Prepaid expenses and accounts payable decreased by $6,000 and $67,000, respectively.

How much cash was provided by operating activities?

(A) $1,466,000

(B) $1,832,000

(C) $1,408,000

(D) $1,530,000

Cash Flow from Operating Activities

The cash flow statement is divided into three parts, operating activities, investing activities and financing activities. The operating activities show the net cash flow from all those activities which are operating in nature. This is why all the non-operating and non-cash activities are adjusted at this part. The change in current assets and current liabilities is also adjusted under operating activities because they are also related to the operations of the business.

Answer and Explanation:


The correct answer is option (A) $1,466,000

Explanation

The below table shows the computation of cash provided by the operating activities:

Remarks Amount
Net Income Given $1387000
Add: Depreciation Depreciation is added as it is a non-cash expenses $262000
Less: Increase in Accounts Receivable Any increase in current assets is a sign of decrease in cash $73000
Less: Increase in Inventories Any increase in current assets is a sign of decrease in cash $49000
Add: Decrease in Prepaid Expense Any decrease in current assets is a sign of increase in cash $6000
Less: Decrease in Account Payable Any decrease in current liabilities is a sign of decrease in cash $67000
Net Cash from Operating Activities $1466000

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Operating Cash Flow: Definition & Examples

from Finance 101: Principles of Finance

Chapter 10 / Lesson 4
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