A company had net income of $252,000. Depreciation expense is $26,000. During the year, Accounts Receivable and Inventory increased by $15,000 and $40,000, respectively. Prepaid Expenses and Accounts Payable decreased by $2,000 and $4,000, respectively. There was also a loss on the sale of equipment of $3,000. How much cash was provided by operating activities?
A) $217,000.
B) $224,000.
C) $284,000.
D) $305,000.

Question

Quizplus · Accepted Answer

Cash provided by operating activities can be calculated using the indirect method of cash flow statement which adjusts net income for non-cash expenses and changes in current assets and liabilities. 
Calculation: 
Net income = $252,000
Add: Depreciation expense = $26,000
Add: Loss on sale of equipment = $3,000
Adjustments for changes in current assets and liabilities:
Accounts receivable increased = -$15,000
Inventory increased = -$40,000
Prepaid expenses decreased = $2,000
Accounts payable decreased = $4,000
Cash provided by operating activities = $252,000 + $26,000 + $3,000 - $15,000 - $40,000 + $2,000 - $4,000 = $224,000. 
Therefore, the best choice is B.

A Company Had Net Income of $252,000