Net income reported for the current year was $222,000.Depreciation expense was $35,000.Accounts Receivable and Inventories increased $4,000 and $7,000, respectively.Prepaid Expenses and Accounts Payable decreased $3,000 and $9,000, respectively.Using the indirect method, how much cash was provided by operating activities?
A)$170,000
B)$180,000
C)$240,000
D)$258,000

Question

Quizplus · Accepted Answer

To calculate cash provided by operating activities using the indirect method, start with net income and adjust for non-cash expenses and changes in working capital. Here, start with net income of $222,000, add back depreciation expense of $35,000, subtract increases in accounts receivable ($4,000) and inventories ($7,000), and add the decrease in prepaid expenses ($3,000). The decrease in accounts payable ($9,000) is subtracted because it represents a cash outflow. The calculation is $222,000 + $35,000 - $4,000 - $7,000 + $3,000 - $9,000 = $240,000.

Net Income Reported for the Current Year Was $222,000