a company had net income of $210,000. depreciation expense is $27,000. during the year, accounts receivable…

a company had net income of $210,000. depreciation expense is $27,000. during the year, accounts receivable and inventory increased $17,000 and $42,000, respectively. prepaid expenses and accounts payable decreased $5,000 and $6,000, respectively. there was also a loss on the sale of equipment of $2,000. using the indirect method, how much cash was provided by operating activities?\no $179,000\no $241,000\no $271,000\no $175,000

a company had net income of $210,000. depreciation expense is $27,000. during the year, accounts receivable and inventory increased $17,000 and $42,000, respectively. prepaid expenses and accounts payable decreased $5,000 and $6,000, respectively. there was also a loss on the sale of equipment of $2,000. using the indirect method, how much cash was provided by operating activities?\no $179,000\no $241,000\no $271,000\no $175,000

Answer

Explanation:

Step1: Recall cash - flow from operations formula

Net income is the starting point for the indirect method of calculating cash - flow from operations. We adjust net income for non - cash items and changes in working capital.

Step2: Add back non - cash expenses

Depreciation is a non - cash expense. So we add it to net income. Net income = $210,000$, Depreciation = $27,000$. After adding depreciation, the amount is $210,000 + 27,000=237,000$.

Step3: Adjust for changes in working capital

  • Increase in accounts receivable: An increase in accounts receivable means less cash received, so we subtract it. Accounts receivable increased by $17,000$.
  • Increase in inventory: An increase in inventory means cash was used to purchase inventory, so we subtract it. Inventory increased by $42,000$.
  • Decrease in accounts payable: A decrease in accounts payable means cash was used to pay off debt, so we subtract it. Accounts payable decreased by $5,000$.
  • Decrease in prepaid expenses: A decrease in prepaid expenses means the expense was recognized without using additional cash, so we add it. Prepaid expenses decreased by $6,000$.
  • Loss on sale of equipment: A loss on the sale of equipment is a non - operating loss that reduced net income but did not use cash, so we add it. Loss on sale of equipment = $2,000$. The calculation is $237,000-17,000 - 42,000-5,000 + 6,000+2,000$. $237,000-17,000=220,000$. $220,000-42,000 = 178,000$. $178,000-5,000=173,000$. $173,000 + 6,000=179,000$. $179,000+2,000 = 181,000$.

Answer:

$179,000$