Use the following information and the indirect method to calculate the net cash provided or used by operating activities: $$\begin{array} { | l | r | }
\hline \text { Net income } & \$ 85,300 \
\hline \text { Depreciation expense } & 12,000 \
\hline\
\hline \text { Gain on sale of land } & 7,500 \
\hline \text { Increase in merchandise inventory } & 2,050 \
\hline \text { Increase in accounts payable } & 6,150 \
\hline\
\hline
\end{array}$$
A) $69,900.
B) $108,900.
C) $93,900.
D) $85,700.
E) $81,600.

Question

Use the following information and the indirect method to calculate the net cash provided or used by operating activities: $$\begin{array} { | l | r | } 
\hline \text { Net income } & \$ 85,300 \
\hline \text { Depreciation expense } & 12,000 \
\hline\
\hline \text { Gain on sale of land } & 7,500 \
\hline \text { Increase in merchandise inventory } & 2,050 \
\hline \text { Increase in accounts payable } & 6,150 \
\hline\
\hline 
\end{array}$$
A) $69,900.
B) $108,900.
C) $93,900.
D) $85,700.
E) $81,600.

Quizplus · Accepted Answer

To calculate the net cash provided or used by operating activities using the indirect method, we start with net income and make adjustments for any non-cash expenses, gains, and losses, as well as changes in current assets and liabilities.

Starting with net income of $85,300, we add back depreciation expense of $12,000, since this is a non-cash expense. This gives us a subtotal of $97,300.

We then subtract the gain on sale of land of $7,500, since this is a non-operating gain and not related to the company's core business activities. This gives us a subtotal of $89,800.

Next, we add back the increase in merchandise inventory of $2,050, since this represents cash that has been tied up in inventory rather than used for operating activities. However, we subtract the increase in accounts payable of $6,150, since this represents cash that has been freed up by delaying payments to suppliers. This gives us a final total of $85,700.

Therefore, the correct answer is C, $93,900.

Use the Following Information and the Indirect Method to Calculate