The net income reported on the income statement for the current year was $1,360,000. Depreciation recorded on plant assets was $257,000. Accounts receivable and inventories increased by $72,000 and $48,000, respectively. Prepaid expenses and accounts payable decreased by $6,000 and $66,000, respectively. How much cash was provided by operating activities?
A)$1,380,000.
B)$1,500,000.
C)$1,437,000.
D)$1,797,000.

Question

Quizplus · Accepted Answer

Cash provided by operating activities is calculated using the indirect method. We start with net income and adjust for noncash transactions and changes in current assets and liabilities.

Starting with net income of $1,360,000:

Add back depreciation: $1,360,000 + $257,000 = $1,617,000

Adjust for changes in current assets and liabilities: 
- Accounts receivable increased by $72,000, so we subtract that: $1,617,000 - $72,000 = $1,545,000 
- Inventories increased by $48,000, so we subtract that: $1,545,000 - $48,000 = $1,497,000 
- Prepaid expenses decreased by $6,000, so we add that: $1,497,000 + $6,000 = $1,503,000 
- Accounts payable decreased by $66,000, so we subtract that: $1,503,000 - $66,000 = $1,437,000

Therefore, cash provided by operating activities was $1,437,000. Choice C is the correct answer.

The Net Income Reported on the Income Statement for the Current