In its first year of operations, Sweetness Co. reported net income of $158,000. Total sales (all on account) amounted to $575,000 and collections of receivables totaled $511,500. Sweetness recorded $17,000 of depreciation expense. Based on these facts alone, what is the net cash provided by operating activities?
A) $ 77,500
B) $ 94,500
C) $111,500
D) $158,000
E) $204,500

Question

Quizplus · Accepted Answer

The net cash provided by operating activities can be calculated by starting with the net income and adjusting for non-cash expenses and changes in working capital. Here, start with the net income of $158,000, add back the non-cash depreciation expense of $17,000, and adjust for the change in accounts receivable (Sales of $575,000 - Collections of $511,500 = $63,500 not collected). Thus, the net cash provided by operating activities is $158,000 + $17,000 - $63,500 = $111,500.

In Its First Year of Operations, Sweetness Co