Gregor Company reports net income of $305,000 for the year ended December 31.It also reports $93,700 depreciation expense and a $10,000 loss on the sale of equipment.Its comparative balance sheet reveals a $40,200 increase in accounts receivable,a $10,200 decrease in prepaid expenses,a $15,200 increase in accounts payable,a $12,500 decrease in wages payable,and a $100,000 decrease in notes payable.Calculate the cash provided (used)in operating activities using the indirect method.
A)$461,800.
B)$371,400.
C)$381,400.
D)$351,000.
E)$361,000.

Question

Quizplus · Accepted Answer

Starting with the net income of $305,000, we add back the depreciation expense of $93,700 and the loss on the sale of equipment of $10,000. This gives us a total of $388,700.

Next, we adjust for changes in current asset and liability accounts. Accounts receivable increased by $40,200, which means we subtract that amount. Prepaid expenses decreased by $10,200, which means we add that amount. Accounts payable increased by $15,200, which means we add that amount. Wages payable decreased by $12,500, which means we subtract that amount. Notes payable decreased by $100,000, which means we add that amount.

When we add up all of these adjustments, we get a total of $46,700.

To get the cash provided (used) in operating activities, we take the net income of $305,000 and add the adjustments of $46,700, which gives us $351,700. However, we need to adjust for any changes in noncurrent asset and liability accounts, which are not included in the adjustments we've already made. Since there are no changes reported in this scenario, we can just use the adjusted net income of $351,700 as the cash provided (used) in operating activities.

Therefore, the correct answer is C) $381,400.

Gregor Company Reports Net Income of $305,000 for the Year